Preamble

The House met at half-past Two o'clock

PRAYERS

[Mr. SPEAKER in the Chair]

PRIVATE BUSINESS

LIVERPOOL CORPORATION BILL (By Order)

Consideration, as amended, deferred till Tuesday, 5th July, at Seven o'clock.

MERSEY DOCKS AND HARBOUR (SEAFORTH WORKS BILL) [Lords]

Second Reading deferred till Tuesday, 5th July, at Seven o'clock.

Oral Answers to Questions — HOME DEPARTMENT

Representation of the People Act, 1949

Dr. David Owen: asked the Secretary of State for the Home Department if he will seek to amend the Representation of the People Act, 1949, to allow long-stay patients in hospitals to be included in the current electoral register, as the present law concerning residents is out of keeping with the spirit of the Mental Health Act and against the principles of community responsibility and care.

The Minister of State, Home Office (Miss Alice Bacon): As I said in the reply which I gave to the hon. Member for Plymouth, Devonport (Dame Joan Vickers) on 27th May, this is a matter within the terms of reference of the Speaker's Conference on Electoral Law.

Dr. Owen: I thank my right hon. Friend for that reply. Could she give an indication when the Speaker's Conference will give some guidance on this matter, because it is causing a considerable amount of concern?

Miss Bacon: I can well understand the anxiety of my hon. Friend, but it is not

for me to say when the Speaker's Conference will report on this particular aspect.

Elections (Postal Vote)

Dr. Winstanley: asked the Secretary of State for the Home Department if he will take the necessary steps to provide a postal vote in local and Parliamentary elections to members of religious organisations whose religious beliefs prevent them from voting in person on the day of the poll.

Miss Bacon: The Parliamentary and Local Government Elections Rules in the Representation of the People Act, 1949, contain special provisions for Jews to have their votes recorded at a poll taken on a Saturday. If the hon. Member has any other point in mind and will let me know, I shall be glad to look into it.

Dr. Winstanley: Is the right hon. Lady aware that the arrangements which she has described are not, in fact, achieving their object? Is she aware that rabbis in certain parts of the country are now instructing their congregations that it would be a breach of their faith to vote in this way? Is she further aware that in some areas—my own in particular, in Gatley—this resulted in large numbers of people abstaining from voting in the recent local elections? Will she, therefore, reconsider this matter?

Miss Bacon: This difficulty would apply to an election held on a Saturday when sundown occurred before polling closed. As the hon. Gentleman is probably aware, I have for 21 years represented in this House a considerable number of Jews, who have never raised this point with me. However, if there is a difficulty I will certainly look into it.

Sir B. Janner: Would my right hon. Friend take into consideration the fact that if an election is held on a Saturday, which is the sabbath not only for Jews but for a number of Sabbatarians, an orthodox person could not possibly go to a polling station before sundown and—

Mr. Speaker: Order. The hon. Gentleman must be brief.

Sir B. Janner: Would my right hon. Friend say that she will consider the possibility of not holding elections on Saturdays throughout the country or in any part of the country?

Miss Bacon: I could not go as far as that, but I will undertake to see if it is possible to overcome any difficulties which may exist.

Metropolitan Police and City of London Police

Sir J. Langford-Holt: asked the Secretary of State for the Home Department what considerations led him to exclude an amalgamation of the Metropolitan Police and the City of London Police from his police amalgamation schemes announced to Parliament on 18th May.

The Secretary of State for the Home Department (Mr. Roy Jenkins): The power contained in the Police Act, 1964, to amalgamate police areas applies to counties and county boroughs and does not extend to the Metropolitan Police District or the City of London.

Civil Defence

Mr. Sharpies: asked the Secretary of State for the Home Department whether he will make a statement with regard to the outcome of his discussions with local authorities concerning the reorganisation of civil defence.

Mr. Roy Jenkins: I cannot yet add to the statement which I made to the House on 2nd February.

Mr. Sharpies: Is the right hon. Gentleman aware that it is now nearly a year since a major reorganisation in civil defence was first announced and it is six months since he said that discussions with local authorities would take place forthwith? Does he not appreciate the very real effect on morale among voluntary workers which this continuing delay and frustration has?

Mr. Jenkins: It is not six months, it is four months and these discussions are proceeding actively.

Mr. Bessell: asked the Secretary of State for the Home Department if he is aware that the film, "The War Game", has created the impression that civil defence would be ineffective in the event of atomic warfare; what steps he is taking

to correct this impression; and if he will make a statement.

Mr. Roy Jenkins: The film deals mainly with the situation in an area subjected to direct attack by nuclear weapons. No one has suggested that civil defence measures could prevent widespread death and injury in the immediate vicinity of an attack. The Government consider, however, that general adoption of efficient and sensible preparations could do much to save lives, relieve suffering, and help the nation to survive. That is why we are maintaining a limited but effective civil defence programme.

Mr. Bessell: I am very grateful for that reply. The Home Secretary's statement will help to set people's minds at rest.

Mr. Frank Allaun: Does the Home Secretary, as a literary gentleman, agree with Emile Zola who said that the truth must out? Would it not be better for the human race if the truth came out now rather than after we and our children have been incinerated? More particularly, would it not be better if it were made known through the medium of television so that people could be stirred against this danger?

Mr. Jenkins: I have no desire and have taken no steps to prevent the truth coming out, either in this or in any other matter. I am merely pointing out that the film deals with the situation in the immediate vicinity of an attack, where the results would undoubtedly be appalling. There might be a different situation some distance from the attack, and it is the duty of the Government to take that into account.

Mr. Marten: Is the Home Secretary aware—he probably is not—that I have been trying to obtain a copy of the script of this film from the B.B.C. so that I can study it and that the B.B.C. has steadfastly refused to allow me to have one? Will the right hon. Gentleman ask the B.B.C. to let him have a copy so that he can place it in the Library and we can all study it?

Mr. Jenkins: The hon. Gentleman will surely be aware that relations with the B.B.C. are not a matter for me.

Mr. W. Baxter: Will my right hon. Friend indicate to the House on what


evidence he bases his claim that civil defence will be effective in a nuclear war?

Mr. Jenkins: I am basing my claim on the view that in areas some distance from the immediate scene of attack it is undoubtedly the case that reasonable measures could help the nation to survive and greatly relieve suffering. Nothing I am saying or doing means that we in any way underestimate the severe effects of such an attack or that we shall abate our efforts to avoid one.

Clubs (Control and Licensing)

Mr. Gurden: asked the Secretary of State for the Home Department if he will take steps to control and license clubs which cause a nuisance to local residents and others.

Miss Bacon: My right hon. Friend cannot hold out a prospect of Government legislation on this subject in the present Session. The hon. Member will, however, be aware that a Bill to provide for the registration and control of unlicensed clubs has been introduced by the hon. Member for Blackpool, North (Mr. Miscampbell).

Mr. Gurden: Is the Minister aware that, while there are many towns still free from them, these disreputable clubs have spread very much in Birmingham and unless the matter is treated with some urgency they will become widespread? It is a very serious matter.

Miss Bacon: I fully agree with the hon. Member and we hope that something will be done. As he will know, some towns and cities have taken steps to tackle this problem by Private Bills, but if a Bill is passed by this House it will not be necessary to introduce local Private Bills.

Mr. J. T. Price: Is my right hon. Friend aware that many of us on both sides of the House think that the time is long overdue when we should take very drastic action by legislation to root out many of these rat-holes which are infesting the country? Is she aware that I will give the utmost support for the provision of any Parliamentary time, even if it means extra sittings, to deal with this matter, because it is a social evil which was not anticipated by this or the

previous Government, and urgent legislation is necessary and demanded by many people whom I represent in this House?

Miss Bacon: I am sure that my hon. Friend has voiced the feelings of a great many hon. Members on both sides of the House. It may be that when the Private Member's Bill comes before the House it will receive a substantial Second Reading vote.

Mr. Hogg: Is not the right hon. Lady aware that this matter has caused such deep concern that the Lord Chief Justice himself has introduced legislation in another place? What is holding up the affording of facilities by the Government for his Bill or the Private Member's Bill which has been referred to? Surely it is a sufficiently important matter to take precedence over many other items in the Government's programme?

Miss Bacon: The right hon. and learned Member will appreciate that the allocation of time is not a matter for me, but we know that this is a very urgent problem. It has been for some years and it seems to have been getting rather worse recently.

Taxis (Metropolitan Police District)

Mr. Ridley: asked the Secretary of State for the Home Department if he will now seek to extend the Hackney Carriage Acts to London, Heathrow, Airport, in view of the charges being made by taxis to and from London Airport.

Mr. St. John-Stevas: asked the Secretary of State for the Home Department whether he will now introduce legislation to abolish the six-mile taximeter limit on London taxicabs.

Mr. Roy Jenkins: The Government intend, when time permits, to introduce legislation to extend the control of fares for taxi journeys beyond the current six mile limit to include all journeys within the Metropolitan Police District, including those to or from London Airport.

Mr. Ridley: I am very grateful for that assurance. Is the right hon. Gentleman aware that the taxi union has brought pressure on a group of hotels to stop them using hire cars to get their customers from London Airport? Does he think that by extending the Hackney


Carriage Acts he will remove the conditions in which this sort of intimidation can flourish?

Mr. Jenkins: I have not received any direct representations about this particular problem, but I certainly think that the London Airport positon is one of the very strong reasons for the original Answer I gave.

Mr. St. John-Stevas: I also express my gratitude to the Minister for that reply. In view of the fact that this antiquated and anachronistic restriction causes so much bad feeling betwen the public and taxi drivers to the detriment of both, will the right hon. Gentleman give an undertaking that we shall very soon see legislation on this subject?

Mr. Jenkins: My right hon. Friend the Minister of State was pressed a few moments; earlier to introduce legislation on another subject. We cannot legislate on all subjects at once. I certainly regard this matter as of considerable importance, but I cannot give a promise of legislation on it this Session.

Fingerprints (Identification)

Sir J. Langford-Holt: asked the Secretary of State for the Home Department how long it takes the Criminal Records Office of the Metropolitan Police to identify a fingerprint submitted to it for that purpose.

Mr. Roy Jenkins: The approximate times are: for the search of a complete set of 10 prints against the main collection of 10 prints, six to 30 minutes, and for the search of a single print against the single print collection 10 minutes to five hours. The time taken to search a single print against the main collection varies too greatly to make any estimate possible.

Police Forces (Essex and Southend)

Mr. Channon: asked the Secretary of State for the Home Department what extra cost he estimates will have to be borne by the ratepayers of Southend owing to his decision to amalgamate the police forces of Essex and Southend.

Mr. Roy Jenkins: The apportionment of the cost of a combined force is a matter for discussion by the police authorities concerned.

Mr. Channon: Would not the Home Secretary agree that a great many of these amalgamations, which admittedly are in the public interest, cause concern to ratepayers in the areas, because as a result they have to pay additional rates and rates are already a burden to them?

Mr. Jenkins: I do not wish to prejudge the discussions in any way, but the cost of an amalgamated force should not be greater than the cost of the two separate forces.

Police Forces (Amalgamation)

Mr. Kenneth Lewis: asked the Secretary of State for the Home Department whether, in determining the amalgamation of police forces, he had regard to regions as defined by other Departments.

Mr. Roy Jenkins: I had regard to all relevant factors. In only one case will the result of an amalgamation be to cause a single police area to straddle two economic planning regions.

Child Care Arrangements, Dorset

Mr. Murton: asked the Secretary of State for the Home Department whether the inquiry into the child care arrangements in Dorset involved a visit by his inspectors to the former foster parents of the boy concerned in the case.

Mr. Roy Jenkins: No, Sir.

Mr. Murton: Does not the right hon. Gentleman think that, in view of the fact that in this Dorset inquiry on which the Chief Inspector provided a report for him no fewer than 43 foster homes were visited, it might have been wise to visit this particular one where the trouble occurred?

Mr. Jenkins: The object of the inquiry was not to investigate an individual case which had been before a court. The object of the inquiry, because of disquiet caused by the original case, was to investigate the general standard of child care in the County of Dorset. I think that was thoroughly and satisfactorily done.

Children In Care

Mr. Murton: asked the Secretary of State for the Home Department when he proposes to publish up-to-date particulars of the number of children in care in England and Wales and related matters


as last published in Command Paper No. 2240.

Mr. Hogg: asked the Secretary of State for the Home Department when the last White Paper on Children in Care was published; and when he intends to publish a new one.

Mr. Roy Jenkins: These statistics were last published in December, 1963; later figures will be published next month.

Mr. Murton: While recognising the value of the fuller triennial report, is it right that this House should be deprived of the annual report, which contained important statistics that are very difficult to obtain from other sources?

Mr. Jenkins: I am sorry for the delay. There has been some difficulty in reconciling figures provided from different sources, from the local authorities and the voluntary organisations, but they will be available next month.

Mr. Hogg: While welcoming the news that the statistics will be available shortly, may I ask the right hon. Gentleman, when he lays his paper, to make it as full as possible in view of widespread concern recently expressed regarding the child welfare service?

Mr. Jenkins: Yes. I think the statistical position will not show any real change in the number of children in child care since the last Report was published, but I will give as much relevant information as I can.

Members of Parliament (Prison Visits)

Mr. Kitson: asked the Secretary of State for the Home Department on how many occasions in the last five years Members of Parliament have been refused permission by his Department to visit preventive detention centres, Borstal institutions and prisons in their own constituencies; for what reasons they have been refused; and if he will make a statement.

Miss Bacon: I can find no record of any refusal of permission for an hon. Member to visit a Prison Department establishment. On very rare occasions, when an hon. Member has asked to see a particular inmate and the inmate indi-

cated that he did not wish to be visited, his wishes have been respected.

Mr. Kitson: I appreciate that that is quite reasonable, but is it not a fact that a bishop can visit a gaol in his diocese without permission and that a justice of the peace can visit a gaol in his area without permission? Does not this illustrate that it is unnecessary red tape that a Member of Parliament should have to write to the Department for permission to go round a gaol in his constituency?

Miss Bacon: If there is a general desire on the part of hon. Members that the present arrangements should be looked at, we will certainly do so. Members have often thanked me for the way in which their visits to prisons have been facilitated. If an hon. Member wishes to visit a prison, it is of help for us to know, because we can often be of help to him in the visit which he is making.

Schoolchildren, Croydon (Police Patrols)

Mr. Winnick: asked the Secretary of State for the Home Department what arrangements are being made for adequate police patrols in the London Borough of Croydon for school crossings and busy thoroughfares used by schoolchildren to and from school.

The Under-Secretary of State for the Home Department (Mr. Dick Taverne): Supervision of schoolchildren crossing busy roads on their way to and from school has been authorised at 85 places in the Borough of Croydon. Ten are covered by police officers because traffic conditions are especially difficult; civilian school crossing patrols are authorised for the other 75. As far as they can, police officers take over any crossings not covered for the time being by civilian patrols owing to sickness or vacancies in the establishment.

Mr. Winnick: Is my hon. and learned Friend aware that there is a great deal of concern in Croydon about the lack of patrols to assist children crossing streets on their way to and from school? Would it not be possible, at. least in Croydon, for traffic wardens to be used for this function?

Mr. Taverne: I am aware that there is a shortage of school crossing patrols in Croydon. We are at the moment negotiating with the Traffic Wardens' Union on the possibility which my hon. Friend mentions.

Mr. Frederic Harris: Is the hon. and learned Gentleman aware that the police of Z division in Croydon have been extremely co-operative in this matter, particularly with the hon. Member for Croydon, North-West? Any points of detail of this kind can easily be obtained by the hon. Member for Croydon, South (Mr. Winnick) by taking the trouble to contact the police in Croydon Z Division?

Mr. Winnick: On a point of order. I do not know whether that allegation is to be allowed. I have in fact visited the police in Croydon.

Mr. Speaker: It is not a point of order for me. It is a point of dispute between the two hon. Members.

Mr. Taverne: I do not wish to enter into this particular dispute. It is recognised that the police do everything possible; they are themselves labouring under a very considerable manpower shortage.

Littlewood Committee (Recommendations)

Mrs. Joyce Butler: asked the Secretary of State for the Home Department if he will now implement those recommendations of the Littlewood Committee which do not require legislation.

Miss Bacon: A scheme for strengthening the Inspectorate is being examined. Proposals for a new Advisory Committee will shortly be put to interested bodies.

Mrs. Butler: As the Littlewood Committee reported more than a year ago and selected these two points as being particularly urgent and capable of implementation without legislation, would my right hon. Friend undertake to do something about increasing the Inspectorate, if possible within the next few weeks, because this is much the most urgent matter?

Miss Bacon: I could not say exactly when we shall do this. As my hon.

Friend knows, because she was a member of the Littlewood Committee, my right hon. Friend has to consult interested bodies. Of the 40 bodies consulted, seven have not yet forwarded their general comments. We want to get on with this as quickly as possible.

Mr. Hogg: Why does the right hon. Lady preoccupy herself so closely with that in this Committee's Report which does not require legislation? Surely this is yet another example—the third this afternoon—of the Home Office being made the Cinderella of the Departments by this Government when beneficial or valuable legislation could be brought forward?

Miss Bacon: The right hon. and learned Gentleman is mistaken. I did not choose to concern myself with that which does not require legislation. The right hon. and learned Gentleman will find on reading the Question asked by my hon. Friend the Member for Wood Green (Mrs. Joyce Butler) that she specifically asked about that part of the Littlewood Committee's recommendations which does not require legislation.

Drugs

Mrs. Joyce Butler: asked the Secretary of State for the Home Department if he has completed his examination of the existing controls over the supply of drugs; and if he will now make a statement on the action he intends to take to make these controls more adequate.

Mr. Roy Jenkins: I have obtained a good deal of information about the working of the Drugs (Prevention of Misuse) Act, 1964, which came into operation on 31st October, 1964. I am making further inquiries and have not yet reached any conclusions on the possible need for amendment of the Act.

Mrs. Butler: Has my right hon. Friend yet made a decision about the licensing of coffee clubs so that they can be registered and inspected? These are one of the most prolific sources of drug invasion.

Mr. Jenkins: This is a matter which would be dealt with in the Bill which is currently being sponsored by the Lord Chief Justice, as the right hon. and


learned Member for St. Marylebone (Mr. Hogg) mentioned, and which the hon. Member for Blackpool, North (Mr. Miscampbell) has given notice of his intention to introduce in this House. I hope that progress may be made with that Bill.

Mr. Deedes: Is the Home Secretary aware that all this evidence points to the fact that clubs are the great key to this problem? As he himself cannot find time to legislate, will he ensure that all co-operation is given by the Home Office to Members of both Houses who are seeking to remedy this evil?

Mr. Jenkins: Yes. I can assure the right hon. Gentleman and the House that we are giving—indeed, we have already given—such co-operation.

Firearms

Mr. Hunt: asked the Secretary of State for the Home Department whether he is satisfied that existing controls on the sale of firearms are sufficient to ensure that such weapons do not fall into the hands of unsuitable or irresponsible persons; and if he will make a statement.

Mr. Roy Jenkins: The question of the restrictions to be placed on the sale of firearms was fully discussed when the Firearms Act, 1965, which substantially strengthened the law, was before the House. That Act has been fully in operation for only eight months and, although I am keeping the situation under review, it is too early to consider further changes.

Mr. Hunt: Will the right hon. Gentleman bear in mind that shotguns, for example, are freely obtainable from mail order firms, and that such weapons are now coming into the country in increasing numbers and create a potentially very dangerous situation? If he is really serious in his intention to tackle the crime wave, is it not time that the sale and availability of these shotguns was brought within the firearms certificate procedure?

Mr. Jenkins: The type of shotguns which are freely available and which can be used without special exemption were considerably restricted under the Firearms Act. I must pay some regard

to the burden of inspection which I can put upon the police. The police do not consider that it would be right to make an extension at the present time.

Mr. Rankin: Is not my right hon. Friend aware that the Government have just appointed a gentleman to further the sale of firearms? What is he doing to stop them getting into unsuitable hands?

Mr. Jenkins: I think that this is a matter of export rather than import.

Sir J. Hobson: What information has the right hon. Gentleman got about how the new Act has been operating during the last eight months?

Mr. Jenkins: I do not think I could usefully give the House information without notice, but I have reason to think that the Act has been working effectively.

Close Security Prison, Parkhurst

Mr. Deedes: asked the Secretary of State for the Home Department what progress is being made on the close security prison at Parkhurst, Isle of Wight; and if he will make a statement.

Mr. Roy Jenkins: I hope to approve the design by the end of the year.

Mr. Deedes: What criteria will be used for the use of these security wings when they are available, and has the right hon. Gentleman any idea how their capacity, when completed, will relate to the number of men who ought to be in such security wings?

Mr. Jenkins: This is not a security wing. We are already using security wings in existing prisons. It is a maximum security prison, which will be a new development. I cannot without notice give the right hon. Gentleman information about the exact capacity, but selection for this prison will be based on the prisoners who most need maximum security.

Jury Service

Sir B. Janner: asked the Secretary of State for the Home Department whether he will introduce legislation to deal with the anomalies at present existing in the jury system.

Mr. St. John-Stevas: asked the Secretary of State for the Home Department when he will introduce legislation to implement the recommendations of the Morris Report on jury service.

Mr. Taverne: The Government intend to introduce legislation on the lines proposed by the Morris Committee, but I cannot yet say how soon.

Sir B. Janner: I am much obliged for that reply, but does my hon. Friend realise that the Report has been out for a considerable time and that the matter is of pressing urgency? Will he expedite the introduction of the necessary legislation?

Mr. Taverne: I realise that the Report has been out for some time, but my hon. Friend will, for his part, realise that there is considerable pressure from competing Measures for legislative time. I cannot myself give any undertaking, as he will understand, on when this legislation will be introduced.

Mr. St. John-Stevas: I appreciate the good intentions and reforming zeal of the Home Office team, but can the hon. and learned Gentleman explain why his Department has been unable to secure any grant of Government time for this and other important reforms?

Mr. Taverne: That is not correct. There are several Bills coming forward in this Session with which the Home Office is concerned.

Mr. Hector Hughes: Will the amending legislation deal with the relative advantages and disadvantages of the majority verdict system?

Mr. Taverne: That is not a matter arising on this Question, because there was no recommendation from the Morris Committee on the subject.

Mr. Hogg: If there is such pressure on Government time in this House, will the hon. and learned Gentleman and his right hon. Friend consider the possibility of introducing legislative reforms of this kind in another place, and, when he does that, will he bear in mind that some of us at least do not share the almost religious veneration for the jury system which was expressed in the Report?

Mr. Taverne: The right hon. and learned Gentleman will know that, even

if legislation is introduced in another place, it will still have to go through this House, so that that would not really solve the problem. On the second point he raised, his observation is noted.

Genocide Convention

Sir B. Janner: asked the Secretary of State for the Home Department whether he will now introduce legislation to enable Her Majesty's Government to accede to the Genocide Convention.

Mr. Taverne: I regret that I cannot at present say how soon this will be possible.

Sir B. Janner: That is a very disappointing Answer. Is not my hon. Friend aware that a definite statement and undertaking has been given regarding the Genocide Convention and that it is tremendously important, not only from our point of view but from the point of view of the general situation throughout the world? Will he please give it his immediate attention?

Mr. Taverne: I accept that it is highly desirable to have legislation on this subject, but on the question of legislative time available I cannot add to the Answer I have already given.

Mr. Hogg: May I press the hon. and learned Gentleman about this? This is the seventh case already today in which the Government have professed themselves unable to find Parliamentary time for relatively uncontroversial legislation. Why cannot the Home Secretary exercise some influence on his colleagues?

Mr. Taverne: I recognise the right hon. and learned Gentleman's great concern, which I share, with Home Office matters, but it remains true that, if all the various suggestions which have been made were to be followed up, the time of the House would be monopolised by Home Office legislation.

General Election (Postal Votes and Spoiled Ballot Papers)

Mr. Blaker: asked the Secretary of State for the Home Department (1) how many postal votes were cast in each constituency in the recent general election;

(2) how many spoiled ballot papers there were in each constituency in the recent general election.

Miss Bacon: I will circulate the information for England, Wales and Northern Ireland in the OFFICIAL REPORT.

Mr. Blaker: I am grateful for that reply, but can the hon. Lady explain, as these figures were available to returning officers the day after the election, how it has taken nearly three months to publish them?

Miss Bacon: I do not understand the hon. Gentleman's question. He has asked for publication of the figures and I have published them. I suspect that he is thinking of another Question which he asked recently on the return of election expenses.

Mr. Gwilym Roberts: Is my hon. Friend aware that a high proportion of these ballot papers are not returned because they are sent to elderly or sick people who are incapable of understanding the complexities of the form involved? Will she assure us that, at an early date, an effort will be made to produce a simplified form for postal voting?

Miss Bacon: As my hon. Friend knows, there will be a debate on this question tomorrow when a Bill is to be brought before the House.

Following is the information:


Name of Constituency
Number of Postal Ballot Papers included in the Count
Number of rejected Ballot Papers


England




Bedfordshire




Bedford
1,551
36


Mid-Bedfordshire
1,357
50


South Bedfordshire
1,285
51


Luton
1,259
46


Berkshire




Abingdon
1,446
50


Newbury
1,171
66


Windsor
787
61


Wokingham
1,420
40


Reading
2,043
36


Buckinghamshire




Aylesbury
1,071
59


Buckingham
2,265
58


South Buckinghamshire
1,175
101


Wycombe
1,483
71


Eton and Slough
1,308
77





Name of Constituency
Number of Postal Ballot Papers included in the Count
Number of rejected Ballot Papers


Cambridgeshire and Isle of Ely




Cambridgeshire
1,213
26


Isle of Ely
757
73


Cambridge
1,260
37


Cheshire




Cheadle
1,147
55


City of Chester
877
136


Crewe
349
135


Knutsford
822
45


Macclesfield
846
79


Nantwich
524
25


Northwich
528
38


Runcorn
624
27


Stalybridge and Hyde
765
101


Wirral
895
48


Altrincham and Sale
895
50


Bebington
1,005
131


Birkenhead
635
90


Stockport North
753
115


Stockport South
682
98


Wallasey
1,036
53


Cornwall




Bodmin
1,637
53


Falmouth and Camborne
1,323
44


North Cornwall
1,991
34


St. Ives
1,021
41


Truro
1,332
30


Cumberland




Penrith and Border
916
37


Whitehaven
532
128


Workington
555
56


Carlisle
1,702
64


Derbyshire




Belper
1,146
148


Bolsover
135
72


High Peak
1,144
42


Ilkeston
266
151


North East Derbyshire
337
143


South East Derbyshire
851
138


West Derbyshire
939
30


Chesterfield
371
33


Derby North
465
111


Derby South
406
64


Devonshire




Honiton
1,338
46


North Devon
1,452
27


Tavistock
1,065
46


Tiverton
1,116
35


Torrington
1,714
47


Totnes
1,313
67


Exeter
1,370
29


Plymouth Devonport
1,196
65


Plymouth Sutton
2,077
123


Torquay
1,060
49


Dorsetshire




North Dorset
1,176
34


South Dorset
1,624
34


West Dorset
1,124
40


Poole
956
45






Name of Constituency
Number of Postal Ballot Papers included in the Count
Number of rejected Ballot Papers


Durham




Bishop Auckland
334
55


Blaydon
337
82


Chester-le-Street
177
91


Consett
178
65


Durham
310
111


Easington
149
64


Houghton-le-Spring
216
61


North West Durham
458
60


Sedgefield
489
74


Darlington
1,026
21


Gateshead East
267
78


Gateshead West
216
22


Jarrow
473
73


South Shields
361
103


Stockton-on-Tees
550
77


Sunderland North
568
97


Sunderland South
889
96


The Hartlepools
861
40


Essex




Billericay
1,854
58


Chelmsford
1,279
51


Chigwell
887
62


Colchester
1,740
40


Epping
1,419
74


Harwich
1,264
57


Maldon
1,951
50


Saffron Walden
2,055
43


South East Essex
923
47


Thurrock
319
45


Southend East
1,050
43


Southend West
975
46


Gloucestershire




Cirencester and Tewkesbury
801
279


South Gloucestershire
1,205
37


Stroud
1,613
38


West Gloucestershire
642
42


Bristol Central
372
45


Bristol North East
1,160
118


Bristol North West
1,494
90


Bristol South
366
71


Bristol South-East
557
96


Bristol West
1,044
43


Cheltenham
967
194


Gloucester
824
32


Hampshire




Aldershot
916
94


Basingstoke
1,024
61


Eastleigh
1,176
34


New Forest
1,043
47


Petersfield
1,143
37


Winchester
1,108
28


Bournemouth East and Christchurch
765
31


Bournemouth West
756
52


Gosport and Fareham
1,049
26


Portsmouth Langstone
1,436
36


Portsmouth South
918
102


Portsmouth West
1,187
54


Southampton Itchen
427
112


Southampton Test
1,081
40





Name of Constituency
Number of Postal Ballot Papers included in the Count
Number of rejected Ballot Papers


Herefordshire




Hereford
939
41


Leominster
898
42


Hertfordshire




East Hertfordshire
1,393
56


Hemel Hempstead
1,384
55


Hertford
1,201
239


Hitchin
1,698
222


St. Albans
924
34


South West Hertfordshire
1,075
70


Watford
1,262
143


Huntingdonshire and Peterborough




Huntingdonshire
957
48


Peterborough
1,358
38


Kent




Ashford
988
34


Canterbury
1,243
56


Dartford
1,286
48


Dover
2,683
59


Faversham
2,052
192


Folkestone and Hythe
892
199


Gravesend
1,568
63


Isle of Thanet
1,503
51


Maidstone
948
211


Sevenoaks
1,253
65


Tonbridge
1,315
54


Gillingham
1,028
22


Rochester and Chatham
1,567
110


Lancashire




Chorley
1,248
130


Clitheroe
824
51


Darwen
1,334
40


Farnworth
429
122


Heywood and Royton
1,036
45


Huyton
604
45


Ince
193
122


Lancaster
700
100


Middleton and Prestwich
970
51


Morecambe and Lonsdale
851
32


Newton
711
153


North Fylde
514
42


Ormskirk
716
162


South Fylde
609
74


Westhoughton
513
107


Widnes
590
76


Accrington
1,192
53


Ashton under Lyne
560
95


Barrow in Furness
471
59


Blackburn
1,105
112


Blackpool North
470
27


Blackpool South
484
118


Bolton East
1,174
155


Bolton West
896
126


Bootle
297
141


Burnley
624
33


Bury and Radcliffe
1,351
134


Crosby
570
115


Eccles
374
107


Leigh
218
77






Name of Constituency
Number of Postal Ballot Papers included in the Count
Number of rejected Ballot Papers


Lancashire (contd.)




Liverpool Edge Hill
328
57


Liverpool Exchange
291
83


Liverpool Garston
543
149


Liverpool Kirkdale
426
42


Liverpool Scotland
98
36


Liverpool Toxteth
808
93


Liverpool Walton
654
58


Liverpool Wavertree
625
25


Liverpool West Derby
472
53


Manchester Ardwick
550
106


Manchester Blackley
802
38


Manchester Cheetham
142
73


Manchester Exchange
252
45


Manchester Gorton
328
135


Manchester Moss Side
477
63


Manchester Openshaw
242
80


Manchester Withington
638
63


Manchester Wythenshawe
893
47


Nelson and Colne
856
87


Oldham East
578
44


Oldham West
482
61


Preston North
844
74


Preston South
678
65


Rochdale
1,051
64


Rossendale
869
89


St. Helens
371
57


Salford East
553
103


Salford West
761
128


Southport
1,077
49


Stretford
821
62


Warrington
397
24


Wigan
231
51


Leicestershire




Bosworth
417
44


Harborough
960
32


Loughborough
807
44


Melton
1,052
95


Leicester North East
354
32


Leicester North West
384
98


Leicester South East
697
223


Leicester South West
410
101


Lincolnshire—Parts of Holland




Holland with Boston
712
124


Lincolnshire—Parts of Kesteven and Rutlandshire




Grantham
1,480
26


Rutland and Stamford
878
94


Lincolnshire—Parts of Lindsey




Brigg
587
109


Gainsborough
747
46


Horncastle
610
75


Louth
713
46


Grimsby
698
56


Lincoln
1,090
75


London




Barnet
753
33


Carshalton
712
43





Name of Constituency
Number of Postal Ballot Papers ncluded in the Count
Number of rejected Ballot Papers


London (contd.)




Chislehurst
1,768
35


East Surrey
912
45


Orpington
1,201
26


Uxbridge
901
41


Acton
783
108


Baron's Court
906
93


Barking
266
26


Battersea North
198
82


Battersea South
772
47


Beckenham
1,018
60


Bermondsey
152
62


Bethnal Green
189
59


Bexley
1,228
18


Brentford and Chiswick
1,005
44


Bromley
892
47


Camberwell—Dulwich
1,185
56


Camberwell—Peckham
288
106


Chelsea
586
49


Cities of London and Westminster
806
79


Croydon—North West
673
53


Croydon—North East
658
35


Croydon—South
860
47


Dagenham
307
106


Deptford
219
63


Ealing North
1,011
44


Ealing South
707
60


East Ham North
223
69


East Ham South
163
50


Edmonton
569
230


Enfield East
341
26


Enfield West
670
37


Erith and Crayford
832
37


Feltham
492
41


Finchley
978
53


Fulham
867
143


Greenwich
525
312


Hackney Central
208
52


Hammersmith North
274
101


Hampstead
1,116
96


Harrow East
693
38


Harrow West
648
28


Harrow Central
594
36


Hayes and Harlington
295
79


Hendon North
1,045
39


Hendon South
680
44


Heston and Isleworth
708
47


Holborn and St. Pancras South
730
131


Hornchurch
1,232
271


Hornsey
1,263
129


Ilford North
679
40


Ilford South
751
37


Islington East
280
85


Islington North
644
62


Islington South West
173
174


Kensington North
746
106


Kensington South
873
58


Kingston-upon-Thames
619
46


Lambeth Brixton
393
97


Lambeth Norwood
942
91


Lambeth Vauxhall
185
85


Lewisham North
1,572
124


Lewisham South
475
45


Lewisham West
994
129






Name of Constituency
Number of Postal Ballot Papers included in the Count
Number of rejected Ballot Papers


London (contd.)


Leyton
952
72


Merton and Morden
670
134


Mitcham
717
68


Paddington North
431
112


Paddington South
375
63


Poplar
131
80


Richmond
647
51


Romford
662
190


Ruislip-Northwood
484
24


St. Marylebone
579
72


St. Pancras North
513
166


Shored itch and Finsbury
135
100


Southall
421
102


Southgate
712
27


Southwark
396
135


Stepney
360
139


Stoke Newington and Hackney North
313
174


Surbiton
506
185


Sutton and Cheam
786
40


Tottenham
364
117


Twickenham
788
43


Walthamstow East
748
33


Walthamstow West
196
27


Wandsworth Central
1,133
54


Wandsworth Clapham
932
100


Wandsworth Putney
1,162
72


Wandsworth Streatham
550
194


Wanstead and Woodford
843
38


Wembley North
524
24


Wembley South
588
29


West Ham North
235
30


West Ham South
125
23


Willesden East
724
96


Willesden West
254
124


Wimbledon
643
31


Wood Green
597
112


Woolwich East
420
103


Woolwich West
1,399
147


Norfolk


Central Norfolk
1,477
121


King's Lynn
1,826
91


North Norfolk
2,112
96


South Norfolk
1,692
45


South West Norfolk
1,921
63


Yarmouth
1,166
83


Norwich North
582
51


Norwich South
1,480
74


Northamptonshire


Kettering
901
68


South Northants
1,239
128


Wellingborough
1,653
100


Northampton
891
143


Northumberland




Berwick upon Tweed
732
32


Hexham
881
44


Morpeth
253
71


Blyth
297
71


Newcastle upon Tyne Central
135
47


Newcastle upon Tyne East
625
60





Name of Constituency
Number of Postal Ballot Papers included in the Count
Number of rejected Ballot Papers


Northumberland (contd.)


Newcastle upon Tyne North
627
16


Newcastle upon Tyne West
543
84


Tynemouth
651
38


Wallsend
416
126


Nottinghamshire


Ashfield
191
121


Bassetlow
394
110


Carlton
941
42


Mansfield
303
200


Newark
1,378
115


Rushcliffe
1,223
43


Nottingham Central
992
69


Nottingham North
607
119


Nottingham South
1,000
125


Nottingham West
681
96


Oxfordshire




Banbury
1,450
56


Henley
854
284


Oxford
1,288
94


Shropshire




Ludlow
934
103


Oswestry
742
28


Shrewsbury
1,003
21


The Wrekin
1,378
80


Somersetshire




Bridgewater
1,411
50


North Somerset
1,954
49


Taunton
1,600
25


Wells
1,309
56


Weston super Mare
1,275
38


Yeovil
1,527
57


Bath
1,557
33


Staffordshire




Brierley Hill
992
156


Burton
1,139
80


Cannock
362
103


Leek
952
142


Lichfield and Tamworth
671
116


Stafford and Stone
858
42


Bilston
269
70


Newcastle under Lyme
506
141


Rowley Regis and Tipton
253
79


Smethwick
419
84


Stoke on Trent Central
174
75


Stoke on Trent North
159
53


Stoke on Trent South
230
99


Walsall North
384
75


Walsall South
1,097
128


Wednesbury
318
87


West Bromwich
378
78


Wolverhampton North East
258
77


Wolverhampton South West
687
129


Suffolk




Bury St. Edmunds
1,800
111


Eye
1,722
33






Name of Constituency
Number of Postal Ballot Papers included in the Count
Number of rejected Ballot Papers


Suffolk (contd.)




Lowestoft
1,569
31


Sudbury and Woodbridge
1,924
79


Ipswich
1,424
59


Surrey




Chertsey
834
60


Dorking
902
27


Epsom
952
64


Esher
983
67


Farnham
958
33


Guildford
990
36


Reigate
1,011
41


Spelthorne
737
47


Woking
1,278
61


East Sussex




Eastbourne
1,146
49


East Grinstead
1,383
49


Lewes
1,091
60


Rye
1,068
46


Brighton Kemptown
1,868
102


Brighton Pavilion
746
189


Hastings
977
55


Hove
1,143
70


West Sussex




Arundel and Shoreham
1,151
46


Chichester
1,136
49


Horsham
1,311
86


Worthing
1,290
31


Warwickshire




Meriden
1,121
115


Nuneaton
509
29


Rugby
1,153
104


Solihull
630
276


Stratford
972
40


Warwick and Leamington
1,083
99


Birmingham All Saints
562
111


Birmingham Aston
345
93


Birmingham Edgbaston
595
44


Birmingham Hall Green
471
38


Birmingham Handsworth
487
108


Birmingham Ladywood
112
38


Birmingham Northfield
769
128


Birmingham Perry Bar
412
46


Birmingham Selly Oak
503
71


Birmingham Small Heath
240
70


Birmingham Sparkbrook
335
134


Birmingham Stechford
311
51


Birmingham Yardley
697
75


Coventry East
360
74


Coventry North
389
150


Coventry South
690
180


Sutton Coldfield
857
39


Westmorland




Westmorland
587
24


Isle of Wight




Isle of Wight
1,250
50





Name of Constituency
Number of Postal Ballot Papers included in the Count
Number of rejected Ballot Papers


Wiltshire




Chippenham
1,299
31


Devizes
1,243
51


Salisbury
1,056
146


Westbury
1,299
62


Swindon
409
105


Worcestershire




Bromsgrove
1,067
212


Kidderminster
761
81


South Worcestershire
797
46


Dudley
586
141


Oldbury and Halesowen
620
102


Worcester
851
90


Yorkshire—East Riding




Bridlington
567
54


Haltemprice
635
54


Howden
316
66


Kingston upon Hull East
257
40


Kingston upon Hull North
1,521
30


Kingston upon Hull West
326
65


Yorkshire—North Riding




Cleveland
775
47


Richmond (Yorks)
485
52


Scarborough and Whitby
715
42


Thirsk and Malton
647
139


Middlesborough East
170
60


Middlesborough West
733
77


Yorkshire—West Riding




Barkston Ash
885
152


Colne Valley
1,143
52


Dearne Valley
232
31


Don Valley
387
135


Goole
346
97


Harrogate
1,009
29


Hemsworth
363
76


Normanton
161
87


Penistone
332
54


Ripon
784
55


Rother Valley
163
121


Shipley
869
16


Skipton
781
35


Sowerby
926
129


Barnsley
423
130


Batley and Morley
597
47


Bradford East
309
112


Bradford North
732
111


Bradford South
643
19


Bradford West
787
120


Brighouse and Spenborough
1,660
122


Dewsbury
542
36


Doncaster
1,081
78


Halifax
1,538
39


Huddersfield East
799
48


Huddersfield West
955
46


Keighley
1,526
112


Leeds East
669
85


Leeds North East
716
148


Leeds North West
866
229


Leeds South
329
58


Leeds South East
271
68






Name of Constituency
Number of Postal Ballot Papers included in the Count
Number of rejected Ballot Papers


Yorkshire—West Riding (contd.)




Leeds West
544
38


Pontefract
300
55


Pudsey
1,119
27


Rotherham
332
65


Sheffield Attercliffe
144
81


Sheffield Brightside
202
45


Sheffield Hallam
622
36


Sheffield Heeley
887
143


Sheffield Hillsborough
252
40


Sheffield Park
101
42


Wakefield
539
138


York
1,583
139


England, Total
422,370
39,108


Wales




Anglesey




Anglesey
735
65


Brecknockshire and Radnorshire




Brecon and Radnor
1,065
161


Caernarvonshire




Caernarvon
812
75


Conway
1,214
104


Cardiganshire




Cardigan
1,070
44


Carmarthenshire




Carmarthen
1,382
51


Llanelly
650
135


Denbighshire




Denbigh
1,036
111


Wrexham
329
89


Flintshire




East Flint
950
69


West Flint
742
32


Glamorganshire




Aberavon
486
111


Barry
1,057
145


Caerphilly
260
83


Gower
396
117


Neath
381
149


Ogmore
579
53


Pontypridd
403
137


Aberdare
430
130


Cardiff North
870
255


Cardiff South East
1,436
42


Cardiff West
754
107


Merthyr Tydfil
193
55


Rhondda East
623
33


Rhondda West
431
31


Swansea East
515
59


Swansea West
1,528
122


Merionethshire




Merioneth
1,210
29





Name of Constituency
Number of Postal Ballot Papers included in the Count
Number of rejected Ballot Papers


Monmouthshire




Abertillery
201
90


Bedwellty
250
75


Ebbw Vale
511
83


Monmouth
1,696
117


Pontypool
292
123


Newport
906
107


Montgomeryshire




Montgomery
822
26


Pembrokeshire




Pembroke
1,333
65


Wales, Total
27,548
3,280


Northern Ireland




North Antrim
166
91


South Antrim
379
129


Armagh
505
388


North Down
198
119


South Down
1,621
159


Fermanagh and South Tyrone
5,978
186


Mid-Ulster
5,000
461


Londonderry
2,909
180


Belfast East
356
89


Belfast North
372
133


Belfast South
254
93


Belfast West
369
295


Northern Ireland, Total
18,107
2,323


Summary




England, Total
422,370
39,108


Wales, Total
27,548
3,280


N. Ireland, Total
18,107
2,323


Grand Total
468,025
44,711

Police Recruits (Physical Standards)

Mr. Goodhart: asked the Secretary of State for the Home Department what discussions he has had on the possible reduction of the physical standards required of certain recruits for the police.

Mr. Taverne: I would refer the hon. Member to the reply which I gave on 16th June to a Question by my hon. friend the Member for Wood Green (Mrs. Joyce Butler).

Mr. Goodhart: Is the hon. and learned Gentleman aware that almost half the present Cabinet are too short and more than half the male population are too short to be recruited into any police


force in this country? In view of the increased specialisation which can come within the larger police forces now to be created, is there not a case for looking at this matter again?

Mr. Taverne: It is being looked at again. It is being looked at by the Working Party. While I see the compelling force of the argument advanced by the hon. Gentleman, I would not regard it as conclusive in the case of either the present Cabinet or the Shadow Cabinet, because they might not necessarily make good policemen.

Prison Escapes

Mr. Braine: asked the Secretary of State for the Home Department how many escapes have been reported from closed and open prisons, respectively, this year up to the week ending 11th June, 1966; how many such escapes were reported in 1965; in how many instances were prisoners recaptured; and if he will make an inquiry into prison security generally.

Mr. Boyd-Carpenter: asked the Secretary of State for the Home Department (1) how many prisoners have escaped from Her Majesty's Prisons or while in the custody of prison officers in each of the last five years; and what is the current rate of such escapes this year;

(2) what are the reasons for the number of recent escapes from Her Majesty's Prisons; and what steps he is taking to deal with this problem.

Mr. Carlisle: asked the Secretary of State for the Home Department how many prisoners have escaped from Her Majesty's prisons during the present year; and if he will make a statement on prison security.

Mr. John Smith: asked the Secretary of State for the Home Department how many escaped prisoners, on average, have been at liberty in each of the past six months.

Mr. Roy Jenkins: To 11th June this year prison escapes of all kinds amounted to 192. I gave the breakdown of this figure in answer to a Question by the right hon. Member for Ashford (Mr. Deedes) on 16th June. Although this was at a lower rate than

in each of the two preceding years—the figure for 1965 was 527 and for 1964 521—it is none the less a high figure and one which, naturally, causes concern.
Some escapes are due to mistakes which can be identified and corrected. A searching inquiry is carried out after each incident, and security is continuously studied with the help of the recently appointed security adviser. There is, however, an underlying problem. Most of our gaols were constructed for an era when security was based on keeping prisoners almost continuously in their cells. This is incompatible with any constructive régime of training and treatment. The problem is exacerbated by overcrowding. I am, therefore, considering urgently whether, for example, by concentrating more on perimeter security and by a more selective allocation of prisoners between different types of prison, we can combine more effective custody with modern training, even in old gaols.
I am circulating in the OFFICIAL REPORT the other figures asked for.

Mr. Speaker: Order. An Answer of that length might well have been given at the end of Questions.

Mr. Braine: Do not the figures confirm that in recent years there has been a big increase in the number of escapes—[HON. MEMBERS: "No."]—in recent years, and especially of dangerous criminals? Is this weakening of prison security due in the main to the shortage of staff, and, if so, what urgent and active steps is the Home Secretary taking to remedy the deficiency?

Mr. Jenkins: As my Answer clearly showed, the figures do not indicate, contrary to what is, I think, the general view at the moment, an increase over the position in the two preceding years. But I do not in any way wish to minimise the importance of the problem. Shortage of prison staff, though one of our problems, is not necessarily the major factor.

Mr. Boyd-Carpenter: Do the figures which the right hon. Gentleman has promised to circulate in reply to Question No. 32, covering the last five years, show an upward tendency? If they do, what is the main reason for it?

Mr. Jenkins: The figures show that the number was higher in 1964–65 than in 1961, but they do not show a steady upward tendency. I do not consider that any single reason can be adduced to explain this, though I endeavoured in my Answer—I apologise for its length Mr. Speaker, but I was replying to five Questions together—to indicate some of the factors which, I thought, were at work.

Mr. Carlisle: Would not the right hon. Gentleman agree that most concern has been aroused because many of the recent escapees are known to be dangerous criminals with records of violence? Can he assure us that, in his desire to improve conditions inside prisons, he does not reduce standards of security where prisoners are known to be dangerous?

Mr. Jenkins: Yes, Sir. That is why I placed emphasis on the selective allocation of prisoners and it is also one reason why we have greatly strengthened security wings in existing prisons and are building the new maximum security prison in the Isle of Wight.

Mr. Heffer: On a point of order, Mr. Speaker. Why was Question No. 36, standing in my name, included with these Questions answered with No. 30? The others may be similar in character but No. 36 deals specifically with Walton Prison.

Mr. Jenkins: I can tell my hon. Friend now. It was not so included.

Mr. Speaker: That seems to be the answer to that.

Following is the information:


ESCAPES DURING 1965



Escapes
Still at large



Male
Female
Male
Female


Closed prisons (including Remand Centres)
77
2
7
—


Open prisons
314
11
11
—


Working parties
92
1
2
—


During transit
30
—
2
—


Totals
513
14
22
—

PRISON ESCAPES OF ALL KINDS FOR THE FIVE YEARS 1961–1966


1961
…
…
…
353


1962
…
…
…
257


1963
…
…
…
355


1964
…
…
…
521


1965
…
…
…
527


1966 (to 11th June)
…
…
…
192

ESCAPED PRISONERS AT LARGE


31st December, 1965
…
…
…
80


31st January, 1966
…
…
…
77


28th February, 1966
…
…
…
74


31st March, 1966
…
…
…
73


30th April, 1966
…
…
…
81


31st May, 1966
…
…
…
79


11th June, 1966
…
…
…
81

Police Forces (Helicopters)

Mr. Geoffrey Lloyd: asked the Secretary of State for the Home Department what steps he is taking to encourage the larger police forces to equip themselves with helicopters.

Mr. Roy Jenkins: The Home Office Police Research and Planning Branch in conjunction with a panel of the Scientific Advisory Council are at present studying the application of helicopters to police work including the costs and performance of the available types. The results will be communicated to all police forces.

Hare Coursing

Mr. Heffer: asked the Secretary of State for the Home Department whether he will introduce legislation which will ban live hare coursing, especially the Waterloo Cup; and if he will make a statement.

Miss Bacon: A review of field sports is being made in consultation with other Ministers concerned. Pending its completion, my right hon. Friend is not in a position to make a statement.

Mr. Heffer: Will my right hon. Friend bear in mind that this type of so-called sport is regarded as a barbarous practice by many people, who feel that it is high time that it was brought under control? Will she reconsider the matter and bring in early legislation?

Miss Bacon: I share my hon. Friend's point of view on this. We are consulting my right hon. Friends the Minister of Agriculture, the Secretaries of State for Scotland and Wales and the Minister of Land and Natural Resources. I cannot promise legislation but I do understand the point of view my hon. Friend has put forward.

Walton Prison, Liverpool (Escapes)

Mr. Heffer: asked the Secretary of State for the Home Department what precautions are being taken to ensure that


prisoners do not escape from Walton Prison, Hornby Road, Liverpool; and if he will make a statement about the escape during the first week of June, 1966.

Mr. Roy Jenkins: The escape referred to was facilitated by the regrettable overcrowding of this prison and by the fact that building operations were in progress. As to security measures, I would refer to the reply I have just given to the hon. Member for South-East Essex (Mr. Braine) and other right hon. and hon. Members.

Mr. Longden: Is the Home Secretary satisfied that this and other escapes were not contrived with the connivance of the prison staff?

Mr. Jenkins: I have not the slightest reason to suspect that. It is important that the House should realise that, worrying though these escapes are, many attempts at escape are frustrated by the ingenuity and devoted service of prison staff.

Mental Health Act (Section 65)

Mr. Deedes: asked the Secretary of State for the Home Department what fresh consideration he has given to his powers under the Mental Health Act, in particular Section 65 of that Act, in the light of the case of John Harold William Moon; and whether he will make a statement.

Mr. Roy Jenkins: I share the right hon. Gentleman's concern about this case. I am not convinced that an amendment of Section 65 of the Mental Health Act is required, but I am considering whether any steps can appropriately be taken to give the courts guidance as to the exercise of their powers under it.

Mr. Deedes: Will the right hon. Gentleman take care that the details of the case are not lost on the Department's shelves? Does not he agree that the case discloses certain deficiences in the operation of the Act if not in the Act itself? Will he be in a position to make a further statement in due course?

Mr. Jenkins: I must make it clear that the youth involved in this very distressing case was never within my care. He was never committed to the care of a

Home Office establishment. The power to do so was with the court but it chose not to exercise it.

Police Forces, South-East Lancashire County Boroughs

Mr. Mapp: asked the Secretary of State for the Home Department after what consultations, and for what reasons, he decided that the police forces in southeast Lancashire county boroughs should be organised with Lancashire County Council rather than with the enlarged Manchester police organisation.

Mr. Roy Jenkins: Bolton, Oldham and Rochdale are separated from Manchester by parts of the county and I have no power under the Police Act to amalgamate parts of police areas.

Mr. Mapp: Does not my right hon. Friend agree that his otherwise rational decision has been sharply restricted by the limitations of the 1964 Act and that a small amending Measure would enable him to be really efficient in this matter? Is he prepared to consider a small amendment to the Act?

Mr. Jenkins: That amounts to the eighth request today for legislation. It was urgently necessary to proceed with police reorganisation. Although I was not responsible for the 1964 Act, I thought it my duty to make the best progress I could under the Act and that is what I propose to do.

Mr. Hogg: In view of what has taken place throughout Question Time, will the right hon. Gentleman re-examine the requests for legislation? Is he not the Cinderella of the Cabinet at the present time?

Mr. Jenkins: The right hon. and learned Gentleman has been very anxious to find something to get excited about today. I assure him that, in the autumn, we will give him a Criminal Justice Bill which will be a major measure and provide him with plenty to get excited about.

Police (Television Cameras and Pocket Radios)

Mr. Tilney: asked the Secretary of State for the Home Department which police forces in the country are now


equipped with television cameras and pocket radio sets; and whether he will take steps to encourage their use as part of the essential modern equipment for the police.

Mr. Roy Jenkins: Seventy-eight police forces in England and Wales are using pocket radio sets and seven have television cameras. I intend that all forces shall have some pocket radios, or pack sets where they are preferred, in this financial year.
Television cameras are more specialised equipment, the use of which is being studied by the Home Office Police Research and Planning Branch.

Mr. Tilney: Is the Home Secretary aware of the very considerable drop in the crime rate in the city of Liverpool due to hidden television cameras? Is he aware that these cameras work in well with the radio sets used by mobile patrols and that the chance of there being a camera hidden somewhere makes a person think twice before committing a crime?

Mr. Jenkins: Yes, Sir, and I have had an opportunity, as the hon. Gentleman is no doubt aware, of seeing this experiment for myself. I find it of great interest and we are studying the results very carefully to see if there can be a wider application of it.

Mr. Carlisle: Is my right hon. Friend aware that the use of these radios is probably one of the greatest recent advantages given to the ordinary policeman on the beat, and will he see that every police force has a sufficient number of them at the earliest possible opportunity?

Mr. Jenkins: Yes, Sir, and that is why, during the next two years, we will be providing a total of up to 12,000 of these sets, which I think will be a revolution in the use of police equipment in this country.

Mr. Heffer: Will my right hon. Friend be very careful in the extension of this development, which I support, to see that it does not go so far as to intrude into the personal liberties of the individuals? Will he take this into consideration?

Mr. Jenkins: I shall certainly watch that point.

HOUSE OF COMMONS (INVESTIGATING COMMITTEES)

Mr. William Hamilton: asked the Prime Minister what progress has been made in the talks with leaders of Her Majesty's Opposition concerning the establishment of new investigating committees of the House; and whether he will publish details of the proposals put forward by Her Majesty's Government.

The Prime Minister (Mr. Harold Wilson): I would ask my hon. Friend to await the statement which will be made when the present consultations have been concluded.

Mr. Hamilton: Can my right hon. Friend give an idea when these discussions will be concluded? Does not he think it proper to let the House know what has been discussed so that we can pass comments before we are presented with a fait accompli? Alternatively, will he assure us that, when proposals are presented, they will be debated on a free vote?

The Prime Minister: There is no question of presenting a fait accompli. It will be the duty of both sides to seek the general opinion of hon. Members. The position now is that, following our meeting last week, it was agreed that we would put some of the things we discussed on paper and we hope to be able to hand a note to the right hon. Gentleman the Leader of the Opposition in the next day or so.

SOUTH-EAST ASIA (DEFENCE COMMITMENTS)

Mr. William Hamilton: asked the Prime Minister if he will make a statement on his talks with representatives of the Australian Government on the question of defence commitments in South-East Asia.

Mr. Biggs-Davison: asked the Prime Minister what assurances he gave the Prime Minister of Australia on British policy east of Suez.

The Prime Minister: I have nothing to add to the Answer I gave to similar Questions on 14th June.

Mr. Hamilton: Will my right hon. Friend say whether he took the opportunity to tell the Australian High Commissioner that Australia should pay a share of her national income on national defence in that part of the world proportionate to what we are doing, and that if they do not we shall have to reconsider?

The Prime Minister: The responsibilities we carry in that part of the world are by no means limited to the defence of Australia, although I know that my hon. Friend would feel that we must carry out our obligations to Australia. There will be opportunity for further discussion of these defence arrangements in the next day or two when my right hon. Friend the Secretary of State for Foreign Affairs has talks with the Australian Government in Canberra.

Mr. Biggs-Davison: Has there not been much pleasure both here and in Australia at the Prime Minister's reaffirmation of our obligations to the Commonwealth east of Suez? May we take it that Her Majesty's Government in the United Kingdom will respond to any request that Her Majesty's Government in Australia may make for arms or other equipment for the Australian forces now bravely fighting in Vietnam?

The Prime Minister: If a statement by me has given pleasure to the hon. Gentleman, I am only too happy. The statement which seems to have given the hon. Gentleman his pleasure now is the statement to the Prime Minister of Australia that we stand by what we said in the Defence White Paper—which the hon. Gentleman himself voted against when it was before the House.
The hon. Gentleman asked that we should give a favourable response to any request for arms for Australian troops in Vietnam. I answered that three weeks ago. The answer remains that we have not been asked and that we are not involved in supplying arms to Vietnam.

Mr. Park: Does not my right hon. Friend agree that these overseas commitments, especially those in South-East Asia, are putting an almost intolerable strain on our economic resources? Will he reaffirm that it is the Government's intention to reduce such commitments as quickly as possible?

The Prime Minister: I have dealt very recently with this question at greater length than I could do at Question Time. It is our intention to carry out our commitments with the minimum cost. We believe that they have been an excessive economic and financial burden. That is why, in the Defence White Paper, we set out our proposals for severely reducing the costs of overseas commitments.

Mr. Heath: What did the Prime Minister mean when he told his party meeting upstairs, as reported in the handout, that when the end of confrontation between Malaysia and Indonesia was ratified, there would be a massive reduction in British Forces in Malaysia? Did he tell the Australian High Commissioner that there would be a massive reduction?

The Prime Minister: Yes, Sir. What I meant by the ratification of the ending of confrontation was that there was an informal agreement, but that it had not yet been officially promulgated by the Indonesian Government. Obviously, we cannot take action, which would be premature until we were certain that confrontation had ended. When that occurs—and we have a very large number of troops in the area because of confrontation and our commitments to Malaysia—and as soon as those troops are no longer required, they will be massively reduced.

Mr. Shinwell: Has there been any revision of the A.N.Z.U.S. Pact, entered into between the United States, Australia and New Zealand in 1951, to the exclusion of the United Kingdom, which was intended to meet all obligations to Australia and New Zealand by the United States?

The Prime Minister: I should want to check on this, but I do not think that there has been a substantial revision of the A.N.Z.U.S. Pact, and nor is there any question of any new military alliance or grouping. We have always had our special relationship with Australia and New Zealand and our obligations there will continue to be carried out but, for reasons which I have explained and in the manner which I have explained, we hope to carry them out much more on the basis not of having an excessive number of troops in those overseas areas, but relying more on the ability to get them there quickly by longer range transport


and by the right kind of staging post bases.

Mr. Heath: The Prime Minister misunderstood the point of my question. I was not asking about the ratification of the ending of confrontation, but what he meant by massive withdrawal. What number of troops is involved and which forces would be involved in a massive withdrawal?

The Prime Minister: I thought that the right hon. Gentleman was asking me to explain the whole phrase which he quoted. As for the definition of massive, how many troops; I am certainly not in a position to say by how many the number would be reduced. We will make a statement as soon as the movements begin. I can certainly promise that it will be a very substantial reduction indeed of the numbers in these areas.

MR. KOSYGIN AND MR. BREZHNEV (VISIT)

Sir C. Osborne: asked the Prime Minister in view of the fact that the visit to London of Mr. Kosygin and Mr. Brezhnev was postponed for Soviet Government reasons, if he will now renew his official invitation to the Soviet leaders; and if he will make a statement.

The Prime Minister: I renewed the invitation to Mr. Kosygin when I visited Moscow in February and, as was announced in the joint communique, Mr. Kosygin accepted. I expect the visit to take place later this year.

Sir C. Osbornr: I welcome the last part of the right hon. Gentleman's reply. Will he remember his own claim that only the Left can deal with the Left and will he please get on with it?

The Prime Minister: I missed the last few words of the hon. Gentleman's Question, but I am always flattered to have attributed to me any phrase used by Mr. Ernest Bevin in 1945.

Mr. Mendelson: Is my right hon. Friend aware that we are all hoping that his invitation will now be accepted and that Mr. Kosygin will be able to come to this country later this year, and that the many difficult problems which are to be discussed are an additional reason for his coming as soon as possible?

The Prime Minister: Yes, Sir. I am grateful to my hon. Friend. In fact, the invitation has been accepted by Mr. Kosygin. We have been in touch about dates. We are looking forward to his visit and both he and I are anxious that these talks should be fruitful and that we should carry on with the work which we began in February when I was in Moscow discussing these questions with him and with Mr. Brezhnev.

DEFENCE

Mr. Marten: asked the Prime Minister whether, in view of the recent discussions with the Australian Government, it is still Her Majesty's Government's policy to maintain a worldwide defence rôle.

The Prime Minister: Yes, Sir.

Mr. Marten: Is the Prime Minister aware that many people are extremely anxious that the pressures from his own back benchers may lead to a premature withdrawal from South-East Asia? Can he give an assurance that even when confrontation ends—and we all hope that it does—there will not be a massive withdrawal until the situation in the area is really stable?

The Prime Minister: I know that the hon. Gentleman, who used to be a very assiduous Minister, has been spending most of his time these days being preoccupied with my hon. Friends' activities. [Interruption.] I was asked two questions and I have just answered the first. As for the second, I have already made it plain this afternoon that we shall not begin reduction of the troops in Borneo or anywhere else from where they might be drawn until we are obsolutely satisfied that the confrontation danger is over. We shall do it when it is safe to do so and we shall do it on an adequate scale.

Rear-Admiral Morgan Giles: Is the right hon. Gentleman aware that the Australian Government's statement on defence emphasises that the States of South-East Asia must have the external support of major allies in order that they may have time to strengthen their political institutions and to have some hope in the future? Does the right hon. Gentleman agree with that policy and will he continue to support it?

The Prime Minister: I am well aware of the statement of the Australian Government. As I have said, these matters will be further discussed in Canberra this week. We have said that we are maintaining a rôle there, but we cannot maintain a rôle on a scale which would be crippling to our economy. That is why we are scaling down wherever we can the extent and the number of troops in areas where they can be scaled down.

Mr. William Price: Would not my right hon. Friend agree that if hon. Members opposite had the honesty and the courage to take the opportunity of a democratic vote, they would get far more curious results than that about which the hon. Member for Banbury (Mr. Marten) is complaining?

The Prime Minister: I did not think that he was complaining about democratic votes, but it is not for me to comment on the points raised, except to say that the attitude of the hon. and right hon. Gentlemen opposite, judged from their speeches in the defence debate, would mean adding a much more crippling burden to what is involved in our own defence policy, and particularly would this be the case if we were to take their advice about the Middle East as well as about South-East Asia.

Sir J. Eden: Even though the changing political situation may well lead to a reduction in forces, would the right hon. Gentleman assure the House that this will be done as a gradual operation and would he clearly give a firm statement about the future of the Brigade of Gurkhas in this part of the world?

The Prime Minister: Of course, in parts of the area concerned it will have to be a gradual process, but since we had an emergency, it was an abnormal build-up of troops in Borneo because of confrontation and we would certainly expect that the reduction there, once that emergency was over, could be something other than gradual and could be much speedier and, as I have said, should be massive. As for the Brigade of Gurkhas and other aspects of the reduction, this is a matter on which in due course my right hon. Friend the Secretary of State for Defence will want to make a statement to the House, but we have not got to that stage yet.

Mr. Grimond: Would not the Prime Minister agree that, whatever words are used, it is impossible for a country so heavily in debt as we are to play an effective worldwide rôle and that it is the attempt to keep up this will-o'-the-wisp worldwide rôle which adds so much to our economic difficulties? Would it not be much better to give priority to the economic situation and to put that right and then look once again at our position in the world?

The Prime Minister: I think that the part which we have played in ending confrontation shows that our rôle can be effective and in this case has been effective. I must say that I am very surprised that the right hon. Gentleman, whom I thought to be as keen a supporter of United Nations peacekeeping and the Commonwealth rôle as I am, should believe that we can do all that this country uniquely can do in relation to the Commonwealth on the basis of a withdrawal to Europe.

RHODESIA

Mr. Sandys: asked the Prime Minister if he will give the best available estimate of the expenditure incurred up to date by Her Majesty's Government in connection with the imposition of sanctions on Rhodesia, including military and financial assistance to Zambia, and of the effects of this policy on Great Britain's visible and invisible exports and her balance of payments.

The Prime Minister: The total expenditure incurred up to the latest date for which figures are available is about £8½ million. The total cost to the balance of payments is more difficult to assess and no reliable estimate is possible. In the first five months of 1966 British exports to Rhodesia were about £11½ million lower than in the same period of 1965.

Mr. Sandys: Will the right hon. Gentleman consider giving, perhaps in the OFFICIAL REPORT, a much fuller statement of the economic and financial effects of sanctions? Does he not think that it is quite a good thing that the African Governments, who all the time are complaining that we are not doing enough, should be aware of the extent of the


burden which we are carrying? Is it not also right that the British people should know what sanctions are costing?

The Prime Minister: Yes, Sir, and to the extent that these figures may be amplified, we shall certainly consider doing what the right hon. Gentleman suggests. Other Commonwealth Governments in Africa are being regularly told by us of what it means and that we are following the policies necessary to carry out the principles laid down by the right hon. Gentleman and his colleagues and by us on the question of the future of Rhodesia. I did not think—I hope that I am right in this—that the right hon. Gentleman was suggesting any withdrawing from giving effect to the principles which he and we have laid down.

Mr. Molloy: Will my right hon. Friend acknowledge that while many hon. Members opposite are concerned about Her Majesty's subjects in other Dominions, there are many of Her Majesty's subjects in Rhodesia who are suffering the burden of being under an illegal régime? Does he not agree that some attitudes of hon. Members opposite are incongruous with the traditions of a democratic society?

The Prime Minister: That raises an issue more suitable to debate than to a short answer, but certainly hon. and right hon. Gentlemen of more than one party opposite who have asked us to take a firm line with sanctions, for example, must recognise that it would be impossible to do what we have done with the airlift to Zambia or the supply of Javelins to Zambia if we had scuttled on the basis of what the right hon. Gentleman the Leader of the Liberal Party was suggesting a few moments ago.

Mr. Grimond: Does the Prime Minister realise that this harking back to old questions convinces me of the extreme pertinence of my question, which has obviously troubled the right hon. Gentleman a good deal? To turn to the current Question; would he not agree that however heavy the expenditure, and no one under-estimates it, it would be quite disastrous, having accepted all this, if we were to go back on principles generally agreed for a settlement with Rhodesia and that, having spent all this money, we must ensure that we stick to the principles which have been laid down and agreed

by all parties? Will he give an assurance that there is no going back on that?

The Prime Minister: I am happy to find a point on which the right hon. Gentleman and I are in agreement. I fully endorse what he has said—that, of course, there can be no going back on the principles laid down by successive Governments and approved by at any rate a very large majority of the House every time we have debated them. I would also so that there would have been no hope at all of making a reality of these principles—and heaven knows that it is difficult enough—if we had not vigourously pursued the sanctions policy introduced by this side of the House and supported by the right hon. Gentleman and some other hon. Members opposite.

Mr. Philip Noel-Baker: Does the Prime Minister consider that it is more costly to abandon a principle, as the Tory Government did when they proposed—[Interruption.]—the withdrawal of sanctions against Mussolini over Abyssinnia in 1936? [Interruption.]

Mr. Speaker: Order. There must be a limit to the width as well as the length of Questions.

The Prime Minister: For that reason it will be very difficult to quantify the answer to my right hon. Friend's Question. Certainly I would say that, even in terms of hard cash and economic interest—quite apart from the very deep principles involved in this issue—if we had given in on these principles last November, I believe that it would have cost this country far more in terms of our economic position, as well as in the loss of principle and loss of standing in all our dealings with the world.

Mr. Heath: Whatever the views on policy may be—

Mr. Philip Noel-Baker: On a point of order. May I respectfully ask that you should look at my question tomorrow, Mr. Speaker. You will see that there were very few words in it and that its length was due to interruptions from the other side of the House. Will the Prime Minister consider that the cost of what was done in 1936—[Interruption.]

Mr. Speaker: Order. I would not want the right hon. Gentleman to misunderstand my observation. I was not complaining about the length of the question,


but the fact that he was going back in history, to the time of Mussolini—[HON. MEMBERS: "Why Not?"]

Mr. Philip Noel-Baker: Further to that point of order. Is it not relevant to cite a case in which sanctions were withdrawn, when the whole purport of the Question by the right hon. Gentleman the Member for Streatham (Mr. Sandys) was that sanctions should now be withdrawn?—

Mr. Speaker: Order. I only had the opinion that the right hon. Gentleman might draw his analogies from a much more recent period in history.

Mr. Sandys: On a point of order. Is is not quite improper for the right hon. Gentleman the Member for Derby, South (Mr. Philip Noel-Baker), when rising on a point of order, to try to impute to me a motive in asking a particular Question?

Mr. Speaker: Order. I hope that the right hon. Gentleman is not going to get too sensitive when political criticisms are made across the Floor of the House.

Mr. Sandys: I am not more sensitive than anyone else in the House. All that I was objecting to was the use of a point of order to make a point of that kind—[Interruption.]

Mr. Speaker: The Chair is neither dismayed nor encouraged by noises of approval or disapproval. The Chair intervened when the right hon. Gentleman the Member for Derby, South (Mr. Philip Noel-Baker) went wide in making his point of order.

Mr. Shinwell: On a point or order—[Interruption.] It is a perfectly valid point of order—at least I hope so. Is it not very embarrassing, and to some extent improper, to probe into the past of the Tory Party?

Mr. Heath: rose——

Mr. Emrys Hughes: On a point of order. Mr. Speaker, would you mind clarifying your Ruling that we must not go back in history to 1935? If that is the case, what happens to Erskine May?

Mr. Speaker: I am grateful to the hon. Gentleman for raising, under the guise of a point of order, what I must regard as a rhetorical question.

Mr. Heath: May I ask a question without being on a point of order? If the Prime Minister is going back to consider his right hon. Friend's point, will he also look at the history of that time of the defence policy of the Labour Party and the effect that it had?

Mr. Speaker: Perhaps the House will now see why I ruled about the width of supplementary questions.

Mr. Heath: I am grateful to you for extending the same liberties to this side of the House as you have done to hon. and right hon. Gentlemen opposite.

Mr. Speaker: Order. The right hon. Gentleman misundersood me. I did not give the right hon. Member for Derby, South the liberty that the right hon. Gentleman is now seeking.

Mr. Heath: I am now on a point of order. It is quite obvious that hon. and right hon. Gentlemen opposite have had the liberty of making a considerable number of political points without reply from this side of the House. I am, therefore, perfectly entitled to suggest to you that I should be allowed to say to the Prime Minister that he ought to examine his own party's record on defence in answer to the point made by the right hon. Gentleman the Member for Derby, South.
If we may return to the original point of the Question, which is one of considerable importance for people both inside and outside of this country, as the Prime Minister has been unable to give a factual reply with any degree of accuracy, will he now consult the National Institute which has worked out a figure, I believe with a considerable degree of accuracy, of the cost of the Rhodesian policy, which is far greater than that which the Prime Minister has given this afternoon?

The Prime Minister: I presume that I shall be in order in replying to all of the series of questions, Mr. Speaker? Since the right hon. Gentleman wants to go back to pre-war with my right hon. Friend, I will go back with him.

Mr. Speaker: Order. The Prime Minister may go back equally briefly with the Leader of the Opposition.

The Prime Minister: Briefly, then, the relevance of the Abyssinian question


raised by my right hon. Friend—[Interruption.] I was asked about this by the Leader of the Opposition—the relevance of this was, as Sir Winston Churchill pointed out, that if the then Conservative Government had shown any resistance and there had been effective sanctions, World War Two would not have happened.
With regard to the second part of the question relating to Rhodesia, the figures which I have given the House are the best figures which we have in a situation in which it is difficult to estimate. I do not know whether the right hon. Gentleman was suggesting that they were inaccurate or that anything calculated by the National Institute with less access to the facts than we have is likely to be more accurate. These are the most accurate figures we have. The right hon. Gentleman refers to the cost of the sanctions policy. Perhaps one day he will tell us whether he supports this policy.

Mr. Heath: Let me tell the Prime Minister perfectly clearly that if he had paid any attention at all to the views of other people in the Rhodesia debates he would know that we supported him in that policy—[Interruption.]

Mr. Speaker: Order. Hon. Members must listen to the expression of opinions with which they do not agree.

Mr. Heath: I asked the Prime Minister to recall the past Rhodesian discussions and to note that I supported the policy of sanctions even when sometimes in disagreement with my right hon. and hon. Friends. In the attempts which we made to get a national policy, we have had nothing but derision from the Prime Minister himself.

The Prime Minister: I recall the right hon. Gentleman's speech on 12th November, which he can look up again. I recall that with each additional sanction which we announced, he got up in heat and rage and came round to it only the next day. If that has been his position, will he at some time take time off to tell the House why he did not vote for the oil sanctions?

Mr. Heath: I will tell the Prime Minister perfectly clearly why I did not support the Government in the Lobby. I supported them by my voice here, as he

himself has done on many occasions in the past when he supported the Government of the day but did not go with the Opposition into the Lobby.

The Prime Minister: The right hon. Gentleman will recall that on that same day he voted against the Government on Rhodesia policy, and when hon. Members were asked to stand up and be counted on the oil sanctions he sat in his place and did not vote. Is he aware that on this, as on other things, we might have had action and not words in support of the Government?

Sir Harmar Nicholls: On a point of order. I was wondering, Mr. Speaker, whether we could be told to which Question these exchanges relate.

ARMS SUPPLY (UNITED STATES OF AMERICA)

Mr. Michael Foot: Mr. Michael Foot (by Private Notice) asked the Secretary of State for Defence why he has acceded to the recent request of the United States Government for the supply of British bombs and other weapons without imposing restrictions about their use in Vietnam.

The Secretary of State for Defence (Mr. Denis Healey): I have not acceded to any such request.

Mr. Foot: Mr. Foot Does my right hon. Friend's reply mean that he repudiates entirely the reports which have appeared in many newspapers this morning, ranging from the Daily Express to The Guardian, even though some of those newspapers indicate that they have checked the matter with the Ministry of Defence? Many of us greatly welcome the fact that he has made no such agreement. Would he make clear that there is no proposal in forthcoming days to agree to these propositions?

Mr. Healey: I am prepared to give an assurance to my hon. Friend and to the House on both matters. The reports in the Press are totally inaccurate, and Her Majesty's Government have no intention of acceding to any such request.

Mr. Arthur Lewis: Will my right hon. Friend investigate how, why and in what way the Press got these reports? Is it right that things of this sort should be spread round the world if they are totally inaccurate? Will he see whether any fault lies with the newspapers?

Mr. Healey: I am not responsible for what appears in the newspapers, and neither is any member of Her Majesty's Government. I should like to remind the House that Her Majesty's Government's policy remains as defined by my right hon. Friend the Prime Minister in the House on 17th May this year, namely, that we do not propose to supply arms directly or indirectly for the fighting in Vietnam. Her Majesty's Government believe that this would be quite inconsistent with our position as co-Chairman of the Geneva Conference.

Captain W. Elliot: Would not the right hon. Gentleman agree that the super-salesman of arms appointed by the Government will, if possible, sell arms to the United States? Would he say whether, if he is successful in doing that, the Government will impose restrictions on the United States in the use of those arms?

Mr. Healey: I have made it clear to the House that one of the purposes of the Government in appointing a head of defence sales was to ensure that sales of armaments from this country were subject to some political restraints. I think that this is a safeguard required by both sides.
On the question of restrictions, certainly, Her Majesty's Government would take care in considering any specific request to ensure that acceding to it would not violate the policy laid down by my right hon. Friend.

Sir G. Nabarro: Is it not a fact that there is an ANZAC brigade, equipped with British weapons and British bombs, fighting in Vietnam with the Americans? Could not the origin of the alleged weapons and bombs referred to by the hon. Member for Ebbw Vale (Mr. Michael Foot) be British, and could they not have found their way into Vietnam via Australia and be used by the ANZAC brigade and by the Americans?

Mr. Healey: That has nothing to do with the question.

Mr. Frank Allaun: Is the Minister aware that a few minutes ago I telephoned a world-famous journalist—[HON, MEMBERS: "Name."] Certainly, I will name him: Chapman Pincher—who told me that he had had this confirmed at the Ministry of Defence. Secondly, is it

not monstrous that this dangerous move should be made to pay for the purchase of the Fills? Should not both these dangerous moves be reconsidered in view of the possible consequences?

Mr. Healey: I am unaware whether my hon. Friend telephoned Mr. Pincher, as I am unaware of many of his activities. I have taken care to find out what guidance was given to the Press by my officials yesterday, and I assure the House that no indication was given by any of my officials—nor could any indication have been given, because it is not the case—that Her Majesty's Government have acceded to any request of the type referred to.

Mr. Maudling: Is it not, therefore, the fact, as the Minister seems to be implying that no arms can be sold and sent from this country to the United States unless there is a clear guarantee that in no circumstances will they be used in any way in connection with the war in Vietnam?

Mr. Healey: I have already told the House that we shall take care to satisfy ourselves that, in supplying arms to foreign countries, we shall not violate the policies laid down by the Government.

Mr. Grimond: Could the Minister be more explicit? We are told that arrangements have been made by which very large dollar purchases of arms are made in this country to offset dollar sales. Are we to understand that no transactions will take place unless there is an effective guarantee from America that the arms so purchased will not be used in Vietnam?

Mr. Healey: The right hon. Gentleman is one of the Members who have pointed out that so far we have not sold many arms under the agreement. He will be aware, and the House is well aware, that it is an agreement covering the next 12 years. I have made it clear that in deciding whether or not to accede to any requests for armaments we shall take care to ensure that our agreement does not violate the policy which has been laid down.

Mr. Shinwell: Will my right hon. Friend remind the House about the nature of the Private Notice Question,


which was to ask whether we were proposing to send bombs and weapons to the United States of America? Did he not give an assurance that there was no truth in that statement? Does he consider that the other questions are relevant?

Mr. Healey: My right hon. Friend is absolutely right. The Question raised by my hon. Friend the Member for Ebbw Vale (Mr. Michael Foot) is based on a misunderstanding of the facts. The Government have not acceded to any request of the nature referred to.

Mr. Heath: Will the Minister stop talking in generalities and answer the specific question which has been put to him by a number of my hon. Friends and the Leader of the Liberal Party? In terms of specific policy, is he saying that no arms can be sold to the United States unless the Administration of that country gives an undertaking that they will not be used in Vietnam? Is that the position—yes or no?

Mr. Healey: That is not the position. [HON. MEMBERS: "Oh."] I made that clear in answer to a Question on 11th May, when I said that we will not seek to impose restrictions on the use of arms which we sell to an ally but that we will take care to ensure that we do not sell arms the use of which is likely to violate the principles to which I have referred.

Mr. Sydney Silverman: Will my right hon. Friend bear in mind that these newspaper statements followed by the questions in the House this afternoon, will be studied carefully all over the world? Does he not agree that he could clarify the situation very much if he would say what requests have been made to the British Government in this context at any time, and what reply was made to them?

Mr. Healey: With respect, it is well known that the Government are not in a position to reveal details of negotiations with other Governments on questions of armaments. What I can tell the House is that a request for certain airborne weapons was received from the United States a year ago, and we were unable to accept it. A further request was received some weeks ago. We are

considering it, but we are satisfied that we shall be unable to accept that, either.

Mr. Hugh Fraser: Surely the right hon. Gentleman will agree that his policy of paying for aircraft with sales of British arms is now in total ruin. Further, will he make clear what is the position about the replacement of stocks in the United States which will be used in Vietnam? Will he see that those stocks are not replaced? Can he give his Left-wing hon. Friends and assurance to that effect?

Mr. Healey: I have made it clear that we shall consider each specific request on its merits in the light of our policy as we have defined it.

Mr. Heath: Will the Minister amplify this point? Has he refused this request from the United States because he is unable to meet it for reasons of production, or because the weapons will be used in Vietnam?

Mr. Healey: We shall be unable to meet it for reasons of production. [HON. MEMBERS: "Ah."] I hope that the House will give me a chance to answer the question put by the right hon. Gentleman. But, in any case, after looking into the matter—and, as I say, we have to look specifically into the likely implications of acceding to any request of this nature—we are satisfied that it would not have been proper to meet the request, for the reasons that I have mentioned.

Several Hon. Members: Several Hon. Members rose——

Mr. Speaker: Order. Mr. Heath, Business Question.

BUSINESS OF THE HOUSE

Mr. Heath: May I ask the Leader of the House whether he can state the business of the House for next week?

The Lord President of the Council and Leader of the House of Commons (Mr. Herbert Bowden).: Yes, Sir.

The business for next week will be as follows:

MONDAY, 27th June—Finance Bill: Committee stage.

TUESDAY, 28th June—Motion on the Emergency Regulations.

Remaining stages of the Law Reform (Miscellaneous Provisions) (Scotland) Bill.

WEDNESDAY, 29th June—Finance Bill: Committee stage.

THURSDAY, 30th June—Finance Bill: Conclusion of the Committee stage.

FRIDAY, 1st July—Private Members' Bills.

MONDAY, 4th July—The proposed business will be: Selective Employment Payments Bill: Committee stage.

Mr. Heath: When the right hon. Gentleman mentioned Thursday's business, and referred to the conclusion of the Committee stage of the Finance Bill, no doubt he really intended to say that he hoped to obtain the conclusion of the Committee stage.
Will the right hon. Gentleman bear in mind that we would like the Supply days which remain to us, by agreement with the Government, to be reasonably spaced throughout the remaining weeks before we rise for the Summer Recess? I do not think that the House would like them all to be crowded together at the end.

Mr. Bowden: I would remind the right hon. Gentleman and the House and that average number of days for the Committee stage of the Finance Bill since the war has been seven. This year, I am allowing eight. That, in my view, is fairly generous. I hope that we can conclude the Committee stage in those eight days without sitting unduly late. I appreciate that it is a Bill which has one Clause which will take up a fair amount of time, but we have made considerable progress. There are not many Clauses left, and three days are available for them.
I have very much in mind the need for an early Supply day, and we shall be having one during the week after next.

Mr. Mendelson: Could my right hon. Friend arrange that the foreign affairs debate should take place before the Prime Minister starts his visit to Washington and that one day should be devoted entirely to the position in Vietnam and South-East Asia, so that the House can express its opinion before the Prime Minister discusses the situation with the President of the United States rather than after-

wards, as has happened on the last three occasions?

Mr. Bowden: I am prepared to look at the timing of the debate on foreign affairs. With the usual co-operation of the Opposition, it will be two days, as I said last week.

Dame Irene Ward: May I ask the right hon. Gentleman for an assurance, since he has said that he hopes to get the Committee stage of the Finance Bill finished on Thursday, that he will leave time for me to introduce my Bill—or is this another sort of sideline to getting rid of my Bill?

Mr. Bowden: To be perfectly frank, I am not quite sure at the moment to which Bill the hon. Lady is referring.

Dame Irene Ward: Then may I tell the right hon. Gentleman that it is the National Insurance (Further Provisions) Bill, which has already twice been dealt with in a very shabby way.

Mr. Bowden: I remember the hon. Lady's Bill now. There is Friday of next week, and it can take the normal time on Friday, from eleven o'clock in the morning until four in the afternoon.

Mr. Woodburn: Since the very number of days in a month or a year determines that debates on the Finance Bill must be limited, is it not possible, through the usual channels, to deal with it in a sensible way, cutting our unnecessary talk and getting the job finished at a reasonable hour during the day?

Mr. Bowden: In the past, there has been co-operation through the usual channels on the actual time allotted to particular Clauses of the Finance Bill. That has worked fairly well. I have already said that we have made reasonable progress. We have dealt with 41 Clauses in five days, and I think that three days will be enough to finish it.
If the House wishes the Select Committee on Procedure to consider again whether parts of the Bill should be taken upstairs—and it has considered that on a number of occasions—it is entitled to do so.

Sir J. Rodgers: May I draw the right hon. Gentleman's attention to Motion No. 98, in my name and the names of some of my hon. Friends?
[That this House requests the Prime Minister to arrange for the House to set up forthwith a tribunal under the Tribunals and Inquiries Act 1921 to investigate the allegations, which are as serious as those made before the Bank Rate Tribunal, that a few individuals have brought pressure to bear on a select few on the Executive of the National Seamen's Union, who in turn have been able to dominate the majority of that Union.]
Can he give an assurance that, when the Prime Minister makes a statement next week on the National Union of Seamen, this request will be dealt with fully then?

Mr. Bowden: Yes, Sir. I have noted that Motion. I think that it will be covered by my right hon. Friend's statement on Tuesday.

Sir G. de Freitas: Is my right hon. Friend aware of the many Council of Europe draft conventions and agreements on practical matters such as crime prevention, frontier formalities, and standardisation of motor insurance, which need to be discussed? Will my right hon. Friend try to arrange, in the foreign affairs debate, for some hours to be set aside to enable us to discuss the work of the Council of Europe?

Mr. Bowden: There are so many requests for time in the two-day debate that I think we had better get a little nearer to the actual debate before we decide how to divide it up.

Mr. Burden: May I remind the right hon. Gentleman of the promise which he gave before the Recess, that there would be an opportunity to debate the Brambell Committee Report? Can he go any further today?

Mr. Bowden: I recall my promise. I still have it very much in mind that we should debate it for at least half a day before we rise for the Summer Recess.

Mr. W. Baxter: In view of the disagreement which there seems to be on both sides of the House about the duties and responsibilities of the arms salesman, as to what he is supposed to sell, and to whom he is supposed to sell it, may I ask my right hon. Friend whether he will give time for a debate on this very important question? There is a great deal

of misunderstanding, and a certain amount of discontent, throughout the country about the idea of even having such a salesman.

Mr. Bowden: Apart from the normal opportunities which are open to backbench Members to raise subjects on Adjournment debates, and so on, I cannot at this stage promise any additional time.

Mr. Ian Gilmour: When does the right hon. Gentleman think that the Government will bring in their legislation on pirate radio stations? Has the right hon. Gentleman noted that Government paralysis has led to raids by boarding parties on one of the forts? When will he do something about it?

Mr. Bowden: It is the Government's intention to introduce legislation. I cannot promise when, but we do intend to legislate on this matter.

Mr. Philip Noel-Baker: May I ask the Leader of the Opposition whether he will co-operate with the Leader of the House——

Mr. Speaker: Order. The right hon. Gentleman must find some other opportunity for asking that kind of question.

Mr. Philip Noel-Baker: May I ask my right hon. Friend whether he will take an early opportunity of seeking the cooperation of the Leader of the Opposition to arrange that the foreign affairs debate will take place before the Prime Minister goes to the United States and will be arranged as my hon. and right hon. Friends have proposed?

Mr. Bowden: I have already said that I will look at the dates and see what can be done in this respect.

Mr. Sandys: Now that the talks between the British Government and the Federal Government of South Arabia have been completed, can the Leader of the House say whether there will be an oportunity to discuss this matter in the foreseeable future?

Mr. Bowden: No, Sir. I cannot make a firm statement at this stage. I am prepared to look at it and probably write to the right hon. Gentleman.

Mr. Heath: Is the right hon. Gentleman aware that we will co-operate fully


in the request put forward by his right hon. Friend the Member for Derby, South (Mr. Philip Noel-Baker), and perhaps, to reciprocate, he will allow me to attend meetings upstairs?

Mr, Orme: Has the Leader of the House seen the Motion, signed by a number of my hon. Friends and myself, asking for a three-day debate on foreign affairs?
[That this House considers that the next debate on foreign affairs should last three days in order to give the many Members who wish to speak a greater opportunity to do so.]
Because of the necessity for an extended debate to consider such matters as Vietnam, to which my hon. Friend the Member for Penistone (Mr. Mendelson) referred, will my right hon. Friend seriously consider this request? The House does not get enough time to discuss foreign affairs throughout the year.

Mr. Bowden: I cannot go beyond the position that I took last week. At the moment, it is firmly a two-day debate on foreign affairs. On the other hand, should there be any possibility of a bonus of time, we can look at it again.

Mr. Kershaw: Does the right hon. Gentleman agree that the statement by the Secretary of State for Defence this afternoon raises great difficulties in our relations with the United States and more particularly, perhaps, with Australia and New Zealand? Will he afford an opportunity for his right hon. Friend to make a statement next week to clear up the matter?

Mr. Bowden: I have no doubt that if my right hon. Friend wishes to make a statement next week, this will be arranged.

Mr. Hector Hughes: Will my right hon. Friend find time to debate my Motion, which draws attention to the number of unnecessarily prolonged speeches made on the Finance Bill?
[That this House is of opinion that much of the time now being used by unnecessary speeches on the Finance Bill could be more wisely used by curtailing those speeches so as to provide House of Commons time to debate the great variety of other subjects of national,

Commonwealth and international importance which many Members desire to debate before the Summer Recess, and calls upon the Leader of the House to take steps to revise the House of Commons timetable accordingly.]
Long speeches frustrate a great variety of hon. Members who wish to discuss a great variety of subjects. Will he give this great variety of hon. Members an opportunity to debate these subjects?

Mr. Bowden: I dealt with this yesterday, in reply to a Question to myself as Lord President of the Council. There is something in this. If all hon. Members restricted themselves to five-minute speeches, we would get much more done, but this is very difficult to enforce.

Mr. Tapsell: Can the right hon. Gentleman say when a Bill will be introduced to give effect to the proposals contained in the recent White Paper on alleged fugitive offenders?

Mr. Bowden: It is the Government's intention to legislate this Session.

Mr. Turton: Reverting to the right hon. Gentleman's reply to the hon. Member for West Stirlingshire (Mr. W. Baxter), may I ask whether he recollects that the Select Committee on Procedure, last Session, recommended that parts of the Finance Bill should be taken upstairs, that the right hon. Gentleman and his colleagues have taken no action on that Report, and that the House has had no opportunity of discussing it? Will he afford the House such an opportunity?

Mr. Bowden: This matter is, in a sense, still under discussion by the Select Committee on Procedure, which is discussing the hours of sitting of the House. I take this matter very seriously. I should like to be able to arrange a full day's debate when the Government have come to a decision on what parts of the Select Committee's Report should be implemented, but this is a question for discussion through the usual channels first.

Mr. Winnick: Does my right hon. Friend appreciate that if he sticks to a two-day foreign affairs debate many hon. Members will not be able to participate in it, and especially those Members who came into the House two months ago?

Mr. Bowden: I am sorry about this but it is not unusual for hon. Members not to make their speeches during debates. In fact, probably some of the best speeches are those that are not made.

Mr. St. John-Stevas: Can the right hon. Gentleman give us some indication of the Government's intention about the timing of the introduction of Ten-Minute Rule Bills? Is it his intention to leave the position as at present, of Bills being introduced immediately after Questions, or does he intend to proceed with the Motion to relegate them to the early hours of the morning or the late hours of the night?

Mr. Bowden: I am grateful for this question. It enables me to say that, because the Select Committee on Procedure is reviewing the hours of sitting of the House, for the time being at least it is advisable that we have Ten-Minute Rule Bills at the old time of half-past three, subject to anything that the Select Committee recommends.

Mr. Goodhew: In view of the statement by the Secretary of State for Defence this afternoon, which makes it clear that so long as the war in Vietnam continues the British Government are unable to sell arms to the United States to help offset the dollar costs of the F111A, may I ask the right hon. Gentleman to arrange a debate on this subject for next week?

Mr. Bowden: We cannot have a debate on this subject next week.

Mr. Leadbitter: Will my right hon. Friend reflect on his answer about a debate on the arms salesman, to which my hon. Friend the Member for West Stirlingshire (Mr. W. Baxter) referred? Will my right hon. Friend realise that on this side of the House we are very badly served indeed, and that if his answer implies that there is a limitation on times the House would willingly accept a morning debate?

Mr. Bowden: The House needs to be reminded on occasions, and I regret to have to do this, that to have a special morning debate needs a Motion of the House, which would probably take a whole day to get through. I am aware of the real concern about the foreign

affairs debate. If it were possible to provide additional time I would do so, but at the moment more than two days is not possible.

Mr. Ramsden: May I ask the right hon. Gentleman what is happening about the Select Committee on the Armed Forces Bill? Is it soon to meet? It will have to meet soon if the work is to be completed.

Mr. Bowden: I understand that it is meeting very soon.

Mr. Biggs-Davison: Will the right hon. Gentleman be cheered to note that I am not asking for time to debate Motion No. 97?
[That this House calls upon Her Majesty's Government favourably to consider any request from the Kabaka of Buganda, who holds an honorary commission from Her Majesty in the British Army, for asylum in the United Kingdom.]
I am proposing to withdraw it, having regard to the decision of the Home Secretary, for which I am grateful, but in view of the great anxiety which many of us feel about the fate of members of the Kabaka's family may I ask the right hon. Gentleman to request his right hon. Friend the Commonwealth Secretary to do what he can to help, and keep Members informed?

Mr. Bowden: I shall certainly consult my right hon. Friend the Commonwealth Secretary on this point.

Sir F. Bennett: Has the right hon. Gentleman's attention been drawn to an all-party Motion, a rather rare phenomenon nowadays, on the question of Gibraltar, which reflects the uncertainty felt on this matter throughout the country?
[That this House urges Her Majesty's Government to uphold the freedom of the people of Gibraltar by refusing to surrender the sovereignty over the Colony to Spain against the wishes of the Gibraltarians who have constantly reiterated their loyalty to Great Britain and their desire to remain under British sovereignty.]
Will he arrange for a clear statement to be made, or, better still, arrange a debate, so that these doubts can be clarified by everyone knowing what the House


of Commons feels, even if they do not seem to know what the Government feel?

Mr. Bowden: My right hon. Friend the Foreign Secretary will be answering Questions on Gibraltar on Monday next. We had better await his replies.

Mr. Eldon Griffiths: Is it not a fact that the statement of the Secretary of State for Defence has inextricably mixed up morality and arms salesmanship? Does the right hon. Gentleman not feel that it would help the House to publish a White Paper setting out precisely what the Government's policy is in this field?

Mr. Bowden: I am quite prepared to suggest this to my right hon. Friend the Secretary of State.

BILL PRESENTED

HOUSE BUYERS PROTECTION

Bill to amend the law so as to establish statutory conditions as to the quality of materials and work in new or converted houses and flats intended for sale, presented by Mr. Alfred Morris; supported by Mr. Harold Lever, Mr. Dennis Coe, Mr. Mark Carlisle, Dr. Ernest Davies, Dr. Winstanley, Mr. Arthur Jones, Mr. William Hamling, Mr. Roy Roebuck, Mr. Arthur Davidson, Mr. Albert Booth, and Mr. Ben Whitaker; read the First time; to be read a Second time upon Friday, 8th July, and to be printed. [Bill 58.]

SITTINGS OF THE HOUSE

Ordered,
That, notwithstanding the provisions of paragraph (1) of Standing Order No. 1 (Sittings of the House), on Wednesday next this House do meet at Eleven o'clock (that after Prayers Mr. Speaker do suspend the Sitting until half-past Two o'clock, and that at that hour the House do proceed with Business as provided in paragraph (1) of Standing Order No. 1 (Sittings of the House), as if the House had met at that hour.—[Mr. Bowden.]

Mr. Henig: On a point of order, Mr. Speaker. Is it not possible to debate this Motion?

Mr. Speaker: It was possible. I looked at the hon. Gentleman, to see whether he was persisting in seeking to speak. The Motion has now passed the House, but it merely embodies a decision of the House which was taken some time ago.

SELECTIVE EMPLOYMENT PAYMENTS BILL

Order for Second Reading read

4.13 p.m.

The Minister of Labour (Mr. R. J. Gunter): I beg to move, That the Bill be now read a Second time.
I need hardly remind the House that this Bill forms the second stage in implementing the Government's proposals for the Selective Employment Tax. Clause 42 of the Finance Bill gives power to collect the tax. This Bill deals with the payment of premiums or refunds to those employers who are entitled to receive them.
The right hon. Gentleman the Leader of the Opposition asked at an earlier stage why it should be I who is to introduce this Bill and not my right hon. Friend the Chancellor of the Exchequer. I hoped that I detected a note of sympathy in that, but it is a fair question. Quite clearly, the Bill is primarily a financial Measure. But if hon. Members will turn to the Financial Memorandum accompanying the Bill they will see that by far the largest sums of money that are due to be paid out to employers by way of premiums and refunds will be handled by my Department. It is thus entirely appropriate that I should take the main responsibility for the Bill.
The point is of little practical importance, for my right hon. Friend and I will be sharing the work between us. He will be winding up tonight and answering questions raised during the debate; Treasury Ministers will also be playing a full part in the later stages.
The Bill gives effect to the proposals published in the White Paper presented to Parliament by my right hon. Friend on Budget day, and to the modifications subsequently announced. These proposals have already been extensively discussed in the House, both in the course of the debates on the Budget Resolutions and during the debate on the Second Reading of the Finance Bill. So much attention has been paid to points of detail that there is some danger of overlooking what it is that the Selective Employment Tax is designed to do.
The tax is intended to have both short and long-term effects. In the short


term, its main purpose is to raise additional revenue in order to restrain consumer demand and thereby improve our balance of payments position; but to do this in a way that will help to redress the tax balance between the manufacturing and service sectors of the economy.
In the longer term it has the additional aim of making more manpower available for manufacturing industry by encouraging economy in the use of labour in the services. If this second purpose had been the only object of the tax there might have been something to be said on the side of those who have argued that it would have been better to wait until next year for a more refined Measure. But it was not its only purpose.
Right hon. and hon. Members opposite have generally not sought to argue that it was wrong to raise extra taxation this year, nor have they seriously questioned the amount which my right hon. Friend has seen fit to raise. The choice was thus not between this tax and no increase in taxation at all. It was between a new tax of this kind and increasing the rates of existing taxes. For example, raising the 25 per cent. rate of Purchase Tax to 33⅓ per cent. together with an increase of 6d. in the standard rate of Income Tax would have raised about the same revenue in a full year.
I am sure that if hon. Members opposite think that Income Tax or Purchase Tax should have been raised they will, in the debate, make this clear. We on this side have taken the view that it is preferable to introduce the new tax this year, accepting that its provisions will fall some way short of perfection—[Laughter.]—rather than to have increased the burden of taxation on manufacturing industries or to have raised the level of tax on incomes.
I think that it will be for the convenience of the House if I explain the provisions of the Bill in some detail. Invoking another laugh, at least I may say that the structure of the Bill is simple enough, however complicated the details that flow from it. Clause 1 deals with the payment of premiums, Clauses 2 to 6 with the payment of refunds to different kinds of employer, and the remaining Clauses with such matters as administra-

tion, appeals, and the power to amend the Act.
Clause 1 follows the White Paper in restricting entitlement to premiums to establishments falling under the Minimum List Headings contained in Orders III to XVI of the Standard Industrial Classification. These are commonly referred to as the "manufacturing" Orders. It also follows the White Paper in providing that the heading under which an establishment falls will be determined by the activity on which the majority of its employees are engaged.
For the way in which the term "establishment" is to be interpreted I would refer the House to subsection (2) of Clause 10. As the right hon. Member for Enfield, West (Mr. Iain Macleod) has already pointed out, the working definition of establishment given in the Introduction to the Standard Industrial Classification is insufficiently precise for our purposes. The Bill therefore provides that premises occupied by a single employer will be regarded as constituting the site of a single establishment if access to all parts of the premises can be obtained without leaving them.
This is roughly equivalent to saying that all the activities conducted by an employer from a single address will be treated as a unit; and in the great majority of cases this will coincide with the way in which the business is, in fact, organised. Of course, there will be exceptions, and some will work to the advantage of the employer.
The next subsection of Clause 10 makes a concession which will help the employer who is carrying out two or more different kinds of activities in a single set of premises. Let us take the example of a firm running a shop and manufacturing leather goods. It will be open to an employer in such a case to apply to have the single set of premises regarded as forming the site of two establishments. Before agreeing to this I should need to be satisfied that the two sets of activities were different in kind, and the test that I would normally apply would be that if they had been carried out on different sets of premises they would have been classified under different Minimum List Headings in the Standard Industrial Classification. The employer would also have to show that the different activities


were physically distinguishable and separately organised.
I would add that this concession works solely in favour of the employer and against the Exchequer. If, in the hypothetical case that I have quoted, the manufacturing activities predominate, I have no doubt that the employer will be very happy to receive premiums also in respect of the staff employed in the shop. It is only if the shop is the major activity that he will want to apply for the premises to be split in two, to enable him to claim premiums for those employed in the making of goods.
To qualify for premiums an establishment must be engaged wholly or partly on activities coming under a Minimum List Heading in the "manufacturing" Orders of the Standard Industrial Classification, and must have more than half its employees employed in connection with those activities. This is a little less complicated than it sounds, but it raises the issue whether premiums should be paid in respect of establishments predominately engaged not in manufacturing as such but in activities incidental to manufacturing such as office work, advertising, transport and sales.
It is no part of the Government's intention that they should. Of course, no company can run without an office, and office work must play an essential part in all manufacturing activities. One could go on to argue from that that manufactured goods are of no use unless they are sold, and that advertising, sales and distribution—the wholesaler, the agent and the retail shop—are all parts of a single chain. All this is true. It is, however, equally true that these sectors of the economy, including the offices, have in recent years been receiving a greater part of the additional manpower available in our economy and that only a small share has gone to the manufacturing sectors. The Bill is deliberately designed to discriminate between the manufacturing and service sectors of the economy.

Mr. William Baxter: I am interested in trying to follow my right hon. Friend's line of argument. It seems to me to be a very complicated one, and I find difficulty in following it. Let us take the position of a contractor who has in his workshop and office a staff of about 100, and who has 300, 400 or

500 out on the sites. How would he fall within the terms of the Bill?

Mr. Gunter: The point is—and it is one that all men engaged in industry have known for a long time—that offices and other ancillaries to manufacture have been attracting far more manpower than they should. The Bill therefore includes a provision to the effect that where more than half the employees of any establishment are engaged on office work, or in the transport of the employers' own goods, or in sales, the establishment as a whole will not qualify for premium—

Several Hon. Members: Several Hon. Members rose——

Mr. Gunter: I am trying to put the main theme of the Bill before the House. The Leader of the Opposition has told us that we shall have a long, hot period when the Bill will be taken apart bit by bit, and I think that it will be better if I develop the main theme rather than be involved in details and in minute expositions of the way in which the legislation is to operate.
In the case of most manufacturing establishments the entitlement to premiums will be clear. Nothing like 50 per cent. of their employees will be engaged on non-qualifying activities, and no intricate head-counting exercises will arise. But I have seen it suggested that the provision relating to non-qualifying activities will discourage manufacturing firms from introducing greater mechanisation or automation.

Sir Harmar Nicholls: The right hon. Gentleman has made it clear that the intention is that the service industries will release men to go into the manufacturing industries. If, as a result of these provisions, they do release men, will they have to pay redundancy payments? If so, this will be a discouragement.

Mr. Gunter: I have no doubt that redundancy payments will be involved.
If the Bill had provided that an establishment would not qualify for premiums if, say, 25 per cent. of its employees were engaged in non-qualifying activities, there might have been some danger of discouraging greater mechanisation, but we have deliberately kept the proportion as high as 50 per cent. in order to prevent it having this effect. What this


provision can certainly be expected to do is to encourage a greater degree of mechanisation of office processes and an increased use of computers. I take it that no one will argue against that.
It has also been suggested that, as a result of the Bill, firms will take steps to move their offices into separate premises or, alternatively, into the same premises as a manufacturing establishment. No doubt this will happen in some cases, though I think that it is easy both to exaggerate the effect of the tax in this respect and to under-estimate the difficulties facing a firm contemplating taking such a step. But if a firm should decide to move its head office from London to the site of a factory in the provinces no one would be more pleased than I.
Clause 1 goes beyond the White Paper in making special provision for research establishments owned by a manufacturing undertaking. It also gives power for premiums to be paid in respect of other establishments certified by the Minister of Technology to be engaged on research related to manufacture. This will enable premiums to be paid to companies which, although not manufacturers themselves, specialise in research for manufacturing companies, as well as to research associations in the manufacturing industries. Research associations in other industries will qualify for premiums, as a special case, if they are engaged in research directed to the manufacture of improved equipment for the use of those industries.
I have dealt with Clause 1 at some length because it is clearly a key part of the Bill. I will deal with the remaining Clauses more briefly. Clause 2 provides for refunds of tax to be made to qualifying establishments in the private sector. For agriculture, horticulture and forestry, refunds will be made by the Minister of Agriculture in England and Wales, and by the Secretary of State in Scotland. In the other cases refunds will be made by my Department.
Among those entitled to refunds will be the establishments of bus companies, including bus undertakings run by local authorities. Clause 10 provides that employment for office purposes is not to be treated as a non-qualifying activity in the case of activities falling under sub-

head 1 of Minimum List Heading 702. This sub-head relates to buses. To have treated office work as a non-qualifying activity in this case would have had the effect of excluding a number of bus companies altogether, and would thus have defeated the intentions of the Government that refunds should be paid to bus undertakings.
Clause 3 gives effect to our intention that the nationalised industries should be treated as neutral for purposes of the tax. Payments to offset the tax will be made by Ministers designated for that purpose by the Treasury. These will normally be the Ministers who answer for the industries to Parliament, though in the case of the Post Office—which is also dealt with under this Clause—the intention is that payments should be made by the Treasury.
Those parts of the nationalised industries which are engaged in manufacturing activities directly comparable to those undertaken in the private sector are listed in Part III of the First Schedule. These will attract premiums. Those parts which are engaged in service activities directly comparable to the private sector are listed in Part II of the First Schedule. These will not attract any refund.
Clause 4 relates to local authorities and similar bodies. The detailed application of its provisions will be discussed with the local authority associations.
Clause 5 provides for the payment of refunds to charities. Few difficulties arise in determining whether an organisation is a charity in England and Wales. A charity which is registered under the Charities Act will automatically qualify for a refund. A charity which is certified by the Charity Commissioners or the Secretary of State for Education and Science to be exempt from registration under the provisions of the Act will also qualify. Any organisation which is aggrieved at a decision not to grant it a certificate may apply to be registered and appeal to the High Court if its application is refused.
The position is more complicated in Scotland, where there is no Register of Charities and no controlling legislation. The Bill therefore follows rating precedent in defining charities by reference to the Income Tax Acts. Any organisation


which is certified by the Secretary of State to be a charity within the meaning of the Income Tax Acts will qualify for refund. If an organisation is aggrieved at a decision not to certify it to be a charity it will have the right of appeal to the Court of Session.
Some of my hon. Friends have maintained that it is wrong that such institutions as public schools, which happen to be charities, should qualify for refunds of tax. I have every sympathy with those who hold that some charities are more worthy than others, and I have no doubt we would all have our own order of preference. But I am sure it would not be wise to give to a Chancellor of the Exchequer the job of deciding which charities are worthy of support and which are not. We have taken the view that, if it is right to give this relief to charities, then it is right to give it to them all.
The provisions of Clause 5 have been generally welcomed throughout the country and I imagine that a similar welcome will be given to Clause 6. In broad terms, it provides relief for individuals who employ nursing or domestic help in a household which includes someone who is old; or in one where there is an incapacitated person who needs such help; or where there is a child or children and the only parent goes out to work.
The payment of refunds will be made through the new Ministry of Social Security. Full details will be announced by my right hon. Friend the Minister of Pensions and National Insurance in due course.
Clauses 5 and 6 together will involve the expenditure of considerable sums viewed in relation to the total amount which it is intended to raise by means of the new tax. I know there will be disappointment that we have not felt able to propose any further special measures for employers of elderly or disabled employees. While I have every sympathy with those who have urged us to do so, I think that they have exaggerated the likely effects of the tax and that neither the economic nor the social case for special treatment is as strong as has been made out. I have no doubt that opportunities will arise in Committee for these issues to be examined in greater detail.
All I would say at this stage is that, if I had thought that the Bill would materially worsen the employment position of disabled people or older workers, I would not have been a party to it. We shall, of course, watch the position carefully during the first year. We shall do the same in relation to part-time workers. But, here again, it is possible to exaggerate the effects of the tax on these workers. Over 90 per cent. of part-time workers are women, which is one reason why the rate of tax for women has been fixed at only half the rate for men.
Clause 7 of the Bill deals with the registration of establishments, the payment of premiums or refunds, and the right of appeal. Employers with establishments which they think qualify for payments under Clauses 1 or 2 of the Bill will be required to register them. Registers for the industries for which I will be responsible will be kept at my Department's local offices. We shall endeavour to keep the registration procedure as simple as possible and we shall let employers know in good time what they have to do. The new tax becomes payable at the beginning of September, but this does not mean that employers must have registered by then.
The Bill gives me power to place establishments on the register from a date earlier than the date on which applications for registration are received, and I intend to make extensive use of this power in introducing the new arrangements. No employer need fear that, by delaying his application for registration until later in the year, he will prejudice his entitlement to premiums or refunds in any way. Our present plans—though these may be subject to modification—are to invite employers to register their establishments during October, November and December.
Repayments in respect of the first four months' tax will be made in the first quarter of the new year. We shall be discussing with the Confederation of British Industry the detailed arrangements for the registration of establishments, and for the payment of premiums and refunds.
An employer who is refused registration in respect of an establishment, or who disagrees with the assessment of


the premium or refund which he is entitled to receive, will have the right to appeal to an industrial tribunal. These tribunals, which consist of a lawyer as chairman, and an employer and worker as members, were first established to hear appeals against levy assessments under the Industrial Training Act. Their rôle was extended under the Redundancy Payments Act to deal with cases arising under that Act, and certain cases under the Contracts of Employment Act. We feel that they will be well qualified to deal also with cases arising under the present Bill.
For agriculture, horticulture and forestry my right hon. Friends the Minister of Agriculture and the Secretary of State for Scotland will be operating similar arrangements, on which they have consulted the agricultural and other organisations concerned. In these industries, also, the procedure for registration and repayment of tax will be as simple as possible. In England and Wales, the registers will be kept at the Ministry's divisional offices, and in Scotland, at the headquarters in Edinburgh—

Sir John Hobson: Would the right hon. Gentleman explain, on these Clause 3 industries—forestry, fishing and agriculture—whether "the establishment" includes everybody involved, or means that only the people left at the head office will qualify for registration?

Mr. Gunter: Everybody in the industry.
In these industries, as I have said, the procedure for registration and repayment of tax will be as simple as possible.
Clause 9 is the last to which I wish to draw special attention. This gives me power, with the consent of the Treasury, to make an order changing the categories of employments qualifying for premiums or refunds. Once the Bill has become law, in whatever form it commends itself to Parliament, we feel that it should be given a fair run. Any modifications will take effect from the second year.
I have endeavoured to outline, for the benefit of the House, the main provisions of the Bill, and where appropriate, the ways in which we propose to administer them. It has been said that the Standard Industrial Classification is an imperfect

instrument for introducing a new tax of this kind. We are well aware that, in some points of detail, it may be open to criticism, but we are equally aware that these are greatly outweighed by its general merits. It would be impossible to find any instrument which could not be faulted in some way.
Hon. Members opposite have made great play, at an earlier stage, of the fact that manufacturers of pin-tables will receive a premium. It is only too easy to argue against any tax by drawing attention to the extremes that would flow from its application. It is the general purpose of the tax and the way this is achieved that matters. Here the basic intention is to tax services and to pay premiums to manufacturing industries; and this is what the Bill succeeds in doing.
The Bill has also been criticised on the grounds that it will create anomalies, in that firms whose circumstances are very nearly alike may be treated quite differently. We fully admit this. Borderlines must be drawn, and those who come on the wrong side of the border are bound to feel unfairly treated, while those who just manage to come on the right side have no complaints.
We shall, of course, be prepared, for next year to look at any cases of what appear to be unreasonable unfairness, thrown up in the administration of the scheme; though I should add that if we manage to eliminate them all we shall be doing what no other tax-makers have succeeded in doing.
The Government's policies form a unified whole and it is as a whole that they must be judged. They are designed to meet the economic objectives laid down by my right hon. Friend in his Budget speech. This Bill will make a significant contribution to the attainment of these objectives and it is on this account that I commend it to the House.

4.43 p.m.

Mr. Edward Heath: I gladly acknowledge at once to the Minister of Labour and, through him, to the Leader of the House, that the Government have kept their undertaking that we would have the Second Reading of this Measure before Clause 42 of the Finance Bill was reached.
It was, of course, an undertaking which would never have needed to be given had the Chancellor of the Exchequer and his fellow Ministers been in any way prepared for this matter. It could then have appeared in the Finance Bill. It is entirely due to the indolence and incompetence of the Chancellor that the Minister of Labour has had to move the Second Reading of this separate Bill today.
The Minister of Labour showed fairly clearly what he thinks about the Bill. The look on his face as he read, in a half-hearted and perfunctory fashion, the brief which the Treasury had cooked up for him could not disguise his disgust, even loathing, at having to present a Bill for which he is wrongly responsible. I have every sympathy with him as have all hon. Members, even his own back benchers.
The right hon. Gentleman said that this was a Bill the provisions of which fell short of perfection. That seems to be the biggest understatement since the Prime Minister half apologised to Julian Amery. In fact, the Minister of Labour admitted that there were anomalies, imperfections and ridiculous features in the Bill. He said that it was hoped that it would all come right in time. But the problem has been illthought out, the scheme ill-prepared and the legislation ill-digested.
Those are the main features of the scheme and the Bill. What is more, it affronts every canon of taxation, from Adam Smith to Hugh Dalton. No wonder that the Minister felt displeasure in introducing it. I assure him that tonight we shall table the first 50 Amendments to remove some of those imperfections.
Of course, the Minister is not really responsible for this. He said that he did not wish to confine himself to fiddling details, but deal with the broader issues, and that is what I will do. I am glad to see the Chancellor on the Front Bench opposite, because it is really his Bill. He is sitting at the centre of this small, tightly-knit financial group, to use current terminology, who are really manipulating the puppets of the Ministry of Labour, the Minister of Pensions and National Insurance, the Minister of Agriculture, Fisheries and Food—whom we do not see here today, although he has a junior puppet perhaps beneath him here—and

the Minister of Technology, who has no representative here at all.
The Secretary of State for Scotland and the Secretary of State for Wales are also being manipulated by the Chancellor in the interests of his own policy. The Chancellor still has a great deal to explain about this legislation and I ask him to do that when he replies tonight.
The origin, purpose and consequences of this tax and payments system are still shrouded, to a large extent, in mystery. After all, this is a major change in our fiscal legislation. It will have possibly very great effects on the economy. Nobody can really foresee whether the effects will be small or considerable. That being so, why did the Chancellor not announce this major change in fiscal policy in the "mini-Budget" which he put out on 1st March? Why not? Perhaps the right hon. Gentleman will explain that tonight.
The Chancellor told us about the betting tax—the details of the scheme, the rate, the revenue which would be produced—and even how helpful it would be for the new scheme for people who had large mortgages to get lower rates. We are getting the betting tax in the Finance Bill, but there is no sign of help for people who have large mortgages. Thus, there can be no question of the right hon. Gentleman not being able to anticipate Budget statements. There was no statement in the "mini-Budget" about this change in our fiscal arrangements or of the extent of it. The Chancellor did not tell us that the amount would be £315 million for the rest of this financial year.
Why was this not produced during all the Press conferences which the Chancellor held during the General Election period? There was no mention of it at that time. What about the Prime Minister's frank fireside talks to the nation? Perhaps the Chancellor will explain. Did the Chancellor set out to deceive the electorate at the election quite deliberately, or did he just not have the guts to tell them what he would do if he was returned to power? That is the first question to which we want an answer when the right hon. Gentleman replies tonight.
The fact is that he did not tell the country the truth about the amount of money he would have to raise or how


he would do it, and he stands discredited for that. He thought that he could get away with it because the tax would not make an impact on people directly or at once but would act only indirectly. In fact, £315 million is being raised this year. This is a serious increase in taxation and belies what the Chancellor said on 1st March.
What is the real purpose of this tax and payments system? The Minister of Labour was at some pains to go over the grounds, which I would like to examine. It is interesting to note the way in which the arguments of right hon. Gentlemen opposite have changed recently and the contradictions there have been in the statements of the various Ministers concerned.
First, this was designed to redress the balance between the amounts paid in tax by the services and manufacturing industry. That was the first argument of the Chancellor in his Budget statement. It also appeared in the White Paper. I believe that it was a completely false and bogus argument—[HON. MEMBERS: "Oh."]—absolutely bogus. Services and manufacturing industry pay the same type of taxes throughout. Purchase Tax, of course, does not come into the cost of manufacturing industry. It affects the consumer but it is not part of the costs of industry.
What the Chancellor is doing by imposing this tax, and by paying it back to some and not to others, is to put the cost into the costs of services themselves. It is, therefore, completely bogus to say that this must be done to redress the balance of taxation between manufacturing industry and the services. That argument does not in any way hold water. It is typical of the bogus arguments on taxation that we had last year from the Chief Secretary, who is looking very pleased at having discovered another one.
If the Chancellor really wanted to balance Purchase Tax on manufactured goods and taxes on services for the consumer, there were many other ways in which he might have done it without it coming into the cost of the services themselves to those who produce them. He could have introduced a simple sales tax, or a tax of that kind. Then this would not have had all the implications which his present arrangement has. It is

a bogus argument which does not hold water.
The right hon. Gentleman said that the purpose of the tax is deflationary and a means of restraining consumer demand and that this would be done without hitting those industries on which indirect taxation is concentrated. If he is to restrain consumer demand through this tax, it can be done only by putting up prices, and that is the one thing which the Chancellor has appealed to everyone not do do. Ministers have produced the most extraordinary figures to show that it will not raise prices at all. How then can it restrain consumer demand and have a deflationary effect?
Of course, it could be done by putting people in the service industries out of work. The Chancellor argues at Question Time and in speeches that no one must be put out of work. He is proud of the fact that unemployment is lower and the number of vacancies is far higher than the number of men available to fill them. He cannot have it both ways, argue that this will be deflationary but not put people out of work and not put up prices.
How will the deflationary effect come about? It will come about, I think, because of the direct effect it will have on industry, agriculture, forestry, horticulture, and all production and the services by the forced loan which they have to make to the State. This is not to the amount which the Chancellor says is the total balance for the year—not at all. It is the amount which has accumulated in the first five months and later will accumulate a quarter at a time.
This is the amount which will be taken direct from industry. This is the only way in which it can have a major deflationary effect. It will amount, I understand, to about £500 million by the end of the first five months before the repayments begin and at the end of each quarter to approximately £300 million, in round figures. The question I put to the Chancellor now is how is this money to be raised by the manufacturing industries and those to whom repayments are to be made in addition to the services which have to find the money in any case? I suppose that it can come from balances which industry and commerce hold. I should have thought the chances of the balances being able to produce this


amount are small. Firms are not holding balances of this size.
It can be achieved by putting up prices. Industry could say, "We have to put up prices to bring in a comparable amount to what we have to pay in in the first three months." That is against the Chancellor's and the First Secretary's policy. I think it unlikely that firms will want to do this. Are they to do it by bank borrowing? This is where we want the Chancellor to state clearly what his intentions are. Is he giving authority to the banks to increase loan arrangements so that everyone involved in paying this tax can draw on them until they get the refund?
This is the critical point. It is particularly critical for agriculture, horticulture, and perhaps for forestry. In agriculture, it is quite obvious that the farmers have not the resources on which to draw until they get the refunds. Neither have the smaller firms in industry. Will the Chancellor answer a question specifically? Is he to give authority to the banks to increase their own loan arrangements so that there can be these borrowings? If not, firms will see their working capital run down. They will be forced to reduce their stocks still further. We have seen in the last year how stocks have been reduced very considerably, I should have thought much lower would be an undesirable level. Then industry would gradually grind down to a much lower level.
Industry will have to keep a pool of about £300 million to pay the tax, allow its resources to run out completely and then get the whole lot back again. This is the only way of getting the deflationary effect and it will be the wrong way because industry will grind down to a lower level which will affect exports as well as consumption. This is the fundamental weakness in the way in which the Chancellor is operating the scheme. Having run the industry down, there is to be a sudden injection of £300 million at the end of the quarter which the Ministry of Labour says will be paid as quickly as possible.
Is this to lead to a completely fresh cyclical arrangement in the purchase of goods, a sudden demand and then a holding off period and after the holding

off period a sudden purchase and then another holding off period? This will affect buyers from all over the world. The Chancellor is a new quack. He first drains off the blood and then gives a shot in the arm; first the leech and then the hypodermic. All this is likely to lead to is three-monthly convulsions of the whole industry.
The third claim is that the tax will force labour out of the services into industry. The Minister of Labour repeated this because it was in the Treasury brief. It was also in the Chancellor's Budget speech, written by the Treasury. He said:
I think it is more important to encourage the redeployment of labour and to give manufacturers a relative advantage in costs compared with the service sector."—[OFFICIAL REPORT, 3rd May, 1966; Vol. 727, c. 1457.]
It is also in the White Paper, although the Chancellor seems to have forgotten it. The White Paper says:
it will have a beneficial longer-term effect by encouraging economy in the use of labour in services and thereby making more labour available for the expansion of manufacturing industry".
On 25th May, during the Second Reading debate on the Finance Bill, the Chancellor said:
there has been a great deal of exaggeration by hon. Members opposite of the consequences on employment of this tax. I have never claimed it will have a large effect; I simply do not believe it will have a large effect."—[OFFICIAL REPORT, 25th May, 1966; Vol. 729, c. 657.]
The second objective appears to have changed. First, the Government say that it would lead to the redeployment of labour and in the Budget speech the Chancellor said the same. On the Second Reading, he said that it would not and the Minister of Labour, with a Treasury brief today, said that it will. What a fantastic circle of argument by the Government. Let them make up their minds what they think they are doing by this tax. The fact is that it is the services which are short of labour today. It is industry which is hoarding it and it will be encouraged to do so still further by the 7s. 6d. a head, depending on the sort of balances in the structure of the firms themselves.
The services are that part of the economy, which naturally expands with growing affluence in our society. Merely


to state the facts as the Minister of Labour did this afternoon, and then to say, "Look at the amount of labour going into the services", is no argument at all. In every developing society, in Scandinavia or the United States, more and more people are going into services. This is a natural consequence of the development of the economy and of society. There is not much of an argument for the Chancellor in that.
In many of the consumer services those who will be affected in employment and who will be stood off as undoubtedly some will be are the part-timers, the disabled and old-age pensioners. We shall table Amendments to deal with this, as well as Amendments to deal with the whole question of the payment of premiums to industry.
The consequences for some services will be very great. To take one small example, contract cleaning is a service which has grown up and which has now become very efficient—the Mrs. Mopps do the job very well—because it is centrally organised. The only result of the tax on the development of this specialisation of labour will be to make the costs so much greater that firms themselves will decide to do this cleaning—less efficiently.
Take the construction industry, a so-called service industry. All we shall see here is an increase in costs estimated officially by the Government at £60 for a £3,000 house and estimated by others at anything between £70 and £150 for a £3,000 house. No wonder the former Minister of Public Building and Works "blew his top" and said that he had never been consulted about it before he retired from office. I will not inquire into the explanation for that; there are a number of possible explanations.
The construction industry will be immediately affected by this tax. There is no logical argument whatever for saying that it ought to bear this tax to force labour out of construction into manufacturing. Indeed, every time the country has had an economic crisis in the postwar years it has been the construction industry which has fundamentally been short of labour, both skilled and unskilled. No one knows this better than the Minister of Labour himself. When I was Minister of Labour the right hon. Gentleman co-operated with me in trying

to break through that vicious circle and get preliminary training for building workers so that we could get the labour necessary to keep the construction industry going, on which so much of the rest of the progress of the economy depended.
Now the Chancellor—the Minister of Labour is aiding and abetting him, as well as he can—is hitting the construction industry by putting this tax on it and making no refund.
Those who are stood off will not be able to go into productive industry. The Chancellor admits that. So what will be the advantage? Old-age pensioners out of work, disabled people out of work, consumers getting worse services—these are the consequences of the action that the Chancellor is taking.
There is a fourth claim. It was not mentioned by the Minister of Labour and it has never been publicly mentioned by the Chancellor. It has always been hinted at. This is all being done to help exports—this is the implicit claim. There is this sort of underlying theme. This argument does not hold water either, because the Bill discriminates against all our invisible exports. Those who are in insurance, in banking, in export houses, and those who are providing for the tourist industry—all the major industries which help us with our invisible exports must pay this tax without refund. So how can the Chancellor fairly claim that this is being done to help our exports.
Invisibles normally give us a credit balance. In many ways they are the easiest thing for the country to pursue. They are the things to which we ought primarily to pay most attention. It is suicidal to discriminate against the in-invisible exporting industries in this way. As to visible exports, it is now apparent that many of the great exporting companies will not benefit from this tax. Indeed, they may have an extra cost. I believe that I.C.I. has now, on mature consideration, come to this conclusion. So this tax discriminates against them, also.
If we look to the principles of this tax, which is what the Minister of Labour asked us to do, we find that it is trying to discriminate between various functions of the economy which do not bear discriminating against. It is the old Stalinist approach. Beneath that bland exterior, there is really an iron Stalinist


streak running through the Chancellor. He "goes for" the heavy industries and the manufacturing industries and thinks that they are the things to be supported; anything else is against the doctrine and he thoroughly disapproves of it.
I want to deal with some of the details mentioned by the Minister of Labour. First, these questions are being settled in Whitehall and are being manipulated from Ministers' offices. This leads to several possibilities of log-rolling and delay, because it is being done through the industrial classification. It means that Whitehall will make its own decision as to which industry is apparently to be commended and which is not and in this way deliberately distorting the economy. This I believe to be wrong.
Secondly, appeals, apparently, are to be made only to administrative tribunals, so the Minister has confirmed—it seems a little odd to us that they should go to the ones set up under the Industrial Training Act—and there is no power to appeal to the courts. We shall want to look at this very carefully. This is the first time that a major tax has been operated within this country other than by the Inland Revenue or the Customs and Excise. This is a deplorable departure from our normal tax practice.
The next point I want to make about it in detail is that it makes nonsense of the Government's so-called development area policy. It was our policy as a Government to discriminate in favour of development areas, or districts as they were then. We thought that the Government were proclaiming the same doctrine. What the Government are, in fact, doing is discriminating, but discriminating against development areas and the regions which most need help. As I said in the remarks I made "off the cuff" immediately after the Chancellor concluded presenting his Budget, this will hit the Scottish Highlands, nearly 80 per cent. of those employed there being in the service industries. It will hit the Welsh. It will hit the West Country.
Figures have now been produced by the National Institute showing very clearly that those who will benefit are the rich and prosperous full-employment Midlands above everybody. The whole of the manufacturing area of the great conurbation of Birmingham—I hasten to

assure my right hon. Friend for Sutton Coldfield (Mr. Geoffrey Lloyd) that I am in no disagreement with that great conurbation—will benefit most when the incidence of these payments is worked out. The people who will be hardest hit are those who most need help—the development areas. This exposes the Government's development area policy for the bogus camouflage it really is. We shall table Amendments about it.
Further, is the Chancellor certain that this is compatible with the G.A.T.T.? The right hon. Gentleman may very well say that what is compatible with the G.A.T.T. is what you can get away with. This in history has proved to be true. The Chancellor may be able to get away with it, but it is certain that it makes nonsense of the Government's European policy, because under the Treaty of Rome the Chancellor certainly would not get away with it. The Commission and the European Court of Human Rights are sitting there to see that he would not get away with it. Why, at a moment when the Government say that they are carrying out at least an exploration into moving into the Common Market, does the Chancellor pursue a tax policy which he would have to abandon if the Government were successful, which I very much doubt?
I come now to some of the provisions of the Bill and the major changes which have been made since the Chancellor's Budget speech. As usual, when it came to the point of preparing this it found the Chancellor in the usual state of un-preparedness to which we are now fully accustomed. The first case was agriculture: he said that the effect of the tax would be taken into account in the Price Review "as far as practicable"; or in forestry that "some account would be taken with the determination of grants"; or in horticulture in the development of horticultural policy.
Did the right hon. Gentleman really think that he would get away with that one, or was his real intention in giving these half-hearted assurances to get something out of agriculture by means of this tax? The Minister of Agriculture—I ask the Joint Parliamentary Secretary to note this—went along with it. He did not stand up for agriculture against the Chancellor. He went along with the Chancellor and let him try to squeeze


something by the back door out of agriculture, horticulture and forestry. As a result of protests we made, these industries will now get payment direct and in full amount it will be returned.
But what is the reason for the discrimination between manufacturing productive industries and agricultural productive industries? This, surely, is the most difficult argument of all to understand.
The Chancellor of the Exchequer started by discriminating against mining and the extractive industries. What argument was there ever for doing that? In fact, as I sat and watched the faces of right hon. Members opposite during the debate on the Budget I realised that they themselves did not know that the extractive industries had been excluded from repayment. This shows the way in which the Measure was prepared. Now, again as a result of protests, they are to get the repayment.
Now, the question of charities. The Chancellor is very upset when accused of being a hard-hearted man and he says that he just wanted a little time to consider details of this sort, that it is rather complicated, as the Minister of Labour said today. But on 17th May, the Chancellor was asked the direct question, whether he would exempt organisations registered as charities under the Charities Act, 1960. The answer was quite specific:
No. this would not be possible".—[OFFICIAL REPORT, 17th May, 1966; Vol. 728, c. 204.]
It was an absolutely firm reply. Yet now we find something quite different in the Bill.

The Chancellor of the Exchequer (Mr. James Callaghan): They are not exempted from paying the tax. There is a refund.

Mr. Heath: Is that the sort of excuse the right hon. Gentleman offers? [HON. MEMBERS: "Wriggle."] I understand the point, but I say seriously to the Chancellor that the Prime Minister has many characteristics, but this is not one which he should try to follow.

Mr. Callaghan: Time after time, the question I was asked was whether charities could be exempted from payment of the tax. I have been asked that about lots of groups The answer is "No," because the insurance stamp is being used. This

is an entirely different matter from whether there can be repayment of the tax. [HON. MEMBERS: "Oh."] I dare say that, when hon. Members have had a little time to think about it, it will dawn even on them.

Mr. Heath: The Chancellor is not really helping his cause. Was it not possible to reply, "Exemption would not be possible, but I intend to refund it."? Of course it was. It was just as possible then as it is now to put it in the Bill. In fact, of course, the Chancellor did not care two hoots about charities when he introduced his scheme, but now, as a result of all the pressure upon him, he has given way, and rightly so.
We see the refund in respect of those who are employed to look after old people, children, the sick, or the incapacitated. The Chancellor has quite rightly made provision there, as, of course, he should, particularly after introducing a Budget and Finance Bill containing not one provision for the social improvement of the people.
I come now to some of the problems with which the right hon. Gentleman has not dealt. First, there is the education problem, which is concerning the independent schools which are not charities. Why is the Chancellor putting this tax on here? Is he aiding and abetting the Secretary of State for Education and Science in trying to get rid of the independent schools by the back way? What possible argument can there be for putting on this tax? Is it thought that these schools are wasteful of manpower and resources, that they do not bother how many people they employ, that fees are no question to them?

Mr. Roy Hattersley: Would the right hon. Gentleman care to comment on the number of staff employed per pupil in public schools as opposed to the number of staff per pupil in schools run by local authorities? Is there not some inherent waste in few teachers being available for the public sector and many teachers being available for the private sector?

Mr. Heath: I am interested to hear that observation. The hon. Gentleman suggests that the number of teachers in the independent schools should be reduced so as to bring them down to the level of every other school. If that is the policy he


is urging, he will not find much support for it from his own Front Bench, to judge by the blunt looks on right hon. Gentlemen's faces.
The Minister of Technology, within his limited capabilities, is trying to persuade industry to use computers and computer services, but the new computer service firms which are being set up to do this—I opened one myself the other day—must pay the tax, with no possibility of refund. How does this encourage the modernisation of industry? Another object of the Government's so-called policy is exposed as completely bogus.
What about the nationalised industries? They are to have an unfair advantage against private industry because of the treatment of those aspects of nationalised industry which compete with private industry, the sales organisations. It is the same with the local authorities. The direct building sections will be given an unfair advantage against the rest of the construction industry. These are not matters of small importance. They are matters of principle, and the Government have always said that nationalised industry ought not to have advantages over private industry where there is supposed to be competition. Let the right hon. Gentleman look at this again, as well.
I come now to an item which, perhaps, concerns me personally. In London a month ago, we had a performance—they are not very frequent—of Mahler's Eighth Symphony, called the "Symphony of a Thousand". This is an illustration of what the effect of this tax will be on the arts. To have a performance now of Mahler's "Symphony of a Thousand" would cost another £843, using the large choir, half male and half female, necessary for the sung part. That is a very interesting and revealing figure. I sent telegrams to Wagner and Strauss saying, "Rewrite for smaller orchestra". But to Mahler I have had to send a telegram saying, "Sorry, the Eighth is now scratched. You just can't hope to do it".
That is, perhaps, a small example of the effect of this tax on the arts. Yet the Government are supposed to be encouraging the arts. They have a Minister

to do it. [HON. MEMBERS: "Where is she?"] I suppose that she is with all the others who are not here. I welcome what the right hon. Lady has done, but this tax will act against her interests, and the Chancellor has done nothing to put it right.
The Bill is riddled with anomalies and they arise from the use of the industrial classification, the use of the establishment or "address" basis, as I think the Minister of Labour now calls it, and the "division by road". Quite what justification there can be for this, I do not understand. It will lead to people building bridges over or slinging rope ladders across, as I see one firm is trying to do. It creates borderline questions, difficulty and hardship.
There will also be the bad effects on the economy, because firms will now spend time working out what their balance of advantage will be. Last Friday, I visited one of our greatest firms with establishments in the Midlands and the North. It has a reconstruction scheme to bring the different parts of its factories and offices together to make them more economic and efficient. Now, of course, that firm is asking itself whether to carry on with that scheme and looking at what the resulting balance will be. Perhaps it would be better for it to remain less efficient so as to get the subsidy which the Chancellor proposes. This is the way the tax is distorting the economy. The Chancellor has only to read any of the financial journals, or talk to any industrialist, to know the point to which they are now directing attention.
There is the problem of bakeries, for example, arising out of the industrial classification. A bakery with a shop attached—or, perhaps, a shop with a bakery attached—would be entitled to the refund, but someone with a shop on one side of the road and the bakery on the other side would not get the refund; he would pay the tax. What a ridiculous arrangement the whole thing is.
When the time comes, we shall move Amendments to deal with many of these items. It will be noted that many affect food. The Labour Party is the first party since the repeal of the Corn Laws to be responsible for putting a tax on food.

Sir John Eden: I did not quite catch what my right hon.


Friend said about bakeries. Is it not a fact that the shop with a small bakery attached is not eligible for refund and is penalised under these proposals, whereas a large bakery with equipment and machinery is classified as manufacturing industry?

Mr. Heath: I think that my hon. Friend is right. His point demonstrates the truth of what the Minister of Labour said about how complicated as well as ridiculous the Bill is.
I want the Chancellor to look again at the whole question of the cost. We have had a figure of £1¼ million for the Departmental cost. In addition, there is the cost to the firms of administering the tax. On top of that, there will be the cost of the forced loan which the Government will take from industry itself. This, surely, is an affront to any good tax. Whoever one takes as one's tax authority, it is always argued that one of the canons of taxation is that it should be simple to administer, which this certainly is not, clear and certain in its impact, which this certainly is not, and economical in administration and cost, which this certainly is not. On all those counts, the tax works against the canons of good taxation practice.
The Minister of Labour said nothing about the way in which he proposes to check these arrangements. What is to be asked of firms? What is required of them so that the Ministry's officials can check the situation before they make payments each time? It is important that we should be given details of this because it will affect the cost to the firms, the amount of labour they will have to employ and the time they will take.
The tax involves 25s. for a man and 12s. 6d. for a woman with repayment of premiums of 7s. 6d. It is interesting to recall what the party opposite said when my right hon. and learned Friend the Member for Wirral (Mr. Selwyn Lloyd) came forward with his tax of 4s. in 1962. The late Hugh Gaitskell said:
It would be quite another thing to apply such a tax—and it must be applied nationally—in development areas where there was already unemployment."—[OFFICIAL REPORT, 17th April, 1961; Vol. 638, c. 843.]
Mr. Gaitskell was quite clear about it. So was the right hon. Member for Battersea, North (Mr. Jay), now the

President of the Board of Trade, who saw nothing to be said for the tax. He said:
… it really is an insane policy to apply this sort of tax indiscriminately in areas which are troubled and perplexed by surplus labour."—[OFFICIAL REPORT, 19th April, 1961; Vol. 638, c. 1291.]
The right hon. Member for Belper (Mr. George Brown), now Secretary of State for Economic Affairs, and responsible for development policy, said:
This is quite a frightening business for large areas of industry, for the development districts, for Scotland, and for Northern Ireland."—[OFFICIAL REPORT, 20th April, 1961; Vol. 638, c. 1507.]
These comments were about a proposed tax of 4s. Now the Chancellor of the Exchequer wants to put 25s. on services. The right hon. Member for Birmingham, Stechford (Mr. Roy Jenkins), now the Home Secretary, who is something of an economist, said:
Its main effect … will be a slight upward effect on prices—a slight inflationary effect throughout the economy."—[OFFICIAL REPORT, 18th April, 1961; Vol. 638, c. 1042.]
The whole thing was summed up in another aspect by the present Prime Minister himself. He said:
If the right hon. and learned Gentleman thinks that wages are too low to secure a real economy in the use of manpower the answer is obvious. He should press for higher wages …. Does not he feel that the workers will consider themselves to have been cheated when they think that employers can afford, or can be made to afford, to pay the labour tax to the Government—while, at the same time, those same employers are refusing to give them wage rises?"—[OFFICIAL REPORT, 18th April, 1961; Vol. 638, c. 986.]
That is a fairly topical quotation. It was all done on 4s. Now the Chancellor asks for 25s. No wonder the hon. Member for Nelson and Colne (Mr. Sydney Silverman) asked the Prime Minister yesterday whether he was quite certain that the Cabinet was still its own master. The Chancellor has his problems and is always in the habit never of defending his own policies or answering questions or explaining what he is trying to do, but of asking the Conservative and Liberal parties, "What would you do?" We do not mind telling him what should be done, but it would be better for him to govern and behave like a Chancellor.
What we did was to remove the possibility of resale price maintenance. We got no support from the Labour Party.


I know, because I had to fight the Act through. The Measure has helped to economise on the use of labour in the retail and wholesale trades. But it is doing it in the right way—without introducing a new element of discrimination into the economy which is decided in Whitehall and is not the result of any natural influences.

Mr. R. E. Winterbottom (Sheffield, Brightside): Will the right hon. Gentleman explain how the resale price maintenance Measure has effected economies in manpower in distributive trades?

Mr. Heath: As a result of competition in wholesaling and retailing, people have had to use the most efficient means. They have been looking to the organisation of their labour. To help them, they also had investment allowances for mechanisation. But the Government, while urging wholesale and retail services to improve themselves, have removed investment allowances, which is a further contradiction in policy.
In this situation, the Government should have followed the scheme we put before the electorate plainly and frankly at the last General Election. This was to move some of the charges on the social services from the Treasury on to industry and to do it, as far as the economy was concerned, without discrimination, but, at the same time, being able to discriminate on an area basis if we had wanted to do so. That is a sound, sensible scheme which would not destroy the economy as between different elements of manufacturing or services, which very often are intertwined. It would avoid the taking of £1,300 million in order, at the end, to have a net revenue for the Treasury of £240 million in a full year.
The Chancellor always asks what should be done. We have told him. If he wants to use this method of dealing with the economy, we have told him a sound and permanent way of doing so. The Government's own scheme is ill-thought out and ill-designed for its purpose. It is embodied in ill-digested legislation. It discriminates against a large part of the economy and most regions in the country. It is riddled with anomalies and is harmful to many of the beneficial interests of the country and to many of the interests which help our exports.
These are the reasons why we shall oppose the Bill tonight.

5.25 p.m.

Mr. R. F. H. Dobson: I am glad to have the opportunity to make my maiden speech today. As far as I can judge, it is almost 10 years to the day since I first made a maiden speech from a political platform. I did so on behalf of a friend who was fighting a constituency in Cornwall. He was unsuccessful and I trust that his failure was not because of my help. I only hope that I achieve more success in my efforts here today.
I suspect that I share with other hon. Members a very high regard for our constituencies. Bristol, North-East is a relatively new constituency. Its boundaries were fixed in 1950, when extensive boundary changes came into effect. Since that time it has been held successively by Mr. William Coldrick, until 1959, and then until 1966 by my immediate predecessor, Mr. Alan Hopkins.
It is customary to pay tribute to one's predecessor, and that I gladly do. Mr. Hopkins and I fought each other twice and each has had the distinction of winning once. I hope that hon. Members will forgive me if I say that, if Mr. Hopkins is selected again for the seat, I hope that I shall win the rubber two to one. Whether I do or not, I can be sure of one thing: we shall have a good clean fight, always discussing politics and never personalities and always presenting our party policies to the electorate in as honest and fair a way as we are able. Our elections in Bristol, North-East have been a model of Parliamentary democracy and I hope that I have the pleasure of fighting a candidate to whom democracy means something real, as I know it does to Mr. Hopkins.
It is an honour to represent any constituency, but to me it is great honour to represent one in the noble and ancient City of Bristol, which has nearly 1,000 years of history behind it already and which has played its part in times gone by in most of the major events in England's history.
At one time, Bristol was the site of a Roman mint, at another a port from which voyages of exploration, discovery


and trade were made. It became a centre, for almost a century, of world fashion and its citizens welcomed the preachings of John Wesley and John Whitfield. The first Methodist chapel was established there, as was the first theatre. It was the first to see a printed newspaper outside London and was the first city to receive a charter which, in 1373, granted it separate county status.
One thing is clear to any student of Bristol's history. It is that the port has been vital to its development. When, during the eighteenth century, the port was neglected, Bristol suffered, and when the pattern was repeated in the middle of the nineteenth century Bristol's trade and citizens suffered again. Therefore, hon. Members can appreciate my concern, shared with other Bristol Members, for the urgent need for the construction of the new port at Portbury. I hope that we shall have a satisfactory decision on Portbury very soon.
Between the wars, Bristol suffered in the country's economic depression and in my constituency is a reminder of those days. An artificial lake in Eastfield Park was on the list of public works which Ernest Bevin was pressing the city to build with the unemployed labour at that time. Since the war, Bristol has expanded its industrial strength. It has not committed the industrial error of having a few large industries only. Rather it has appreciated and embraced the need for industrial diversification and it has gone further than that in that it has hidden its industrial strength so cleverly that it remains not only a rich and active city industrially, but also very beautiful.
Perhaps Bristol's most significant contribution since the war has been its determination to look after those citizens who need care and attention. It has developed its social and welfare services very substantially. Bristol has proceeded apace with slum clearance and rebuilding schemes and the number waiting for houses is smaller than in any city of a comparable size, while homes for the aged, clubs for the young, hobbies, sports and recreational activities are thriving.
In short, a community spirit has been fostered which might well have been patterned on the days when the city's present 260,000 acres were a dozen separate

villages. I never enter the City of Bristol without a feeling of pride for it and, coupled with that, a determination to do my best for it for as many years as I can.
Perhaps I can begin to try to do something today. There are three points about the Bill which I wish to make. I welcome the Bill generally and in one respect I am delighted that the Chancellor of the Exchequer has been able to meet the problems of church organisations and charities. On 25th May, my right hon. Friend said that there were about 100,000 charities in this country. I am not surprised—there are more than 500 of them in Bristol alone.
I visited one of them the other day, St. Christopher's School, which is unique in the range and age of the handicapped children which it accepts. It is a residential charity. It has 130 children aged between 7 and 17. It accepts children who, due to single or multiple disabilities together with general backwardness, are unable to find places in any other educational establishment. There is a long waiting list. With a staff of 80, St. Christopher's work would have been badly handicapped by the Selective Employment Tax. Other churches and charities would have been in a similar difficult financial position, so I very much welcome Clause 5.
I have two other points to make, one important, although comparatively minor, and the other rather more substantial. Order XXIII, the Miscellaneous Services group, lists sports and other recreations which must make payments under the Bill. Gloucestershire County Cricket Club ground is in my constituency and the club will be hard pressed by the new tax. Last season, the club suffered a loss of £7,500 and its total indebtness to the bank is more than £25,000. As the Bill now stands, the tax will add about £1,500 to that each year.
I should like my right hon. Friend to consider amending the Bill so that the club could avoid payment of the tax. After all, it can hardly serve as a reservoir of staff which could usefully be employed in manufacturing. It is a small employer. In addition, in the main, county cricket clubs are non-profit-making, as the figures I have just given


probably show. I am sure that Gloucestershire will not be the only club to be seriously affected by the new tax.
I can add an emotional appeal as well. Gloucestershire is, of course, the club from which came three famous England cricketers—Grace, Jessop and Hammond. Dr. Grace lived in my constituency, in Downend, and the local authority there, Mangotsfield Urban District Council, is negotiating to purchase the house as a memorial or museum to his memory. I therefore ask my right hon. Friend to seek to allow the cricket clubs to avoid the tax which was designed for totally different purposes and which could end the rather famous game which we have been playing in this country for so long.
Finally, I ask whether Order XVII could be put into Clause 1 or into Clause 2. Order XVII covers the construction industry as a whole. Housing, roads, hospital buildings, are but three of the many types of buildings which will be directly affected by the tax. I understood that the Government had housing as their first priority. The tax is bound to affect that in price or in other ways. For instance, a manufacturer of concrete blocks gets the premium, but the builder, perhaps a small builder, who makes his own, pays the tax. Similarly, the builder who has his own joinery section pays the tax, while the joinery manufacturer is eligible for the premium.
There are many other examples, and I ask the Minister again to consider whether Order XVII could be included in either Clause 1 or Clause 2. It would be more logical to include building in manufacturing industries rather than to leave it classed broadly as a service industry.

5.37 p.m.

Sir John Vaughan-Morgan: It gives me the greatest pleasure to congratulate the hon. Member for Bristol, North-East (Mr. Dobson) on his maiden speech. He adhered to the three traditions which we have on these occasions. He was non-contentious; he referred in laudatory terms to his constituency; and he spoke with respect of his predecessor. Those are three traditions—two of them comparatively new—which he has honoured today, and which I regard as admirable.
First, it is a good thing to be non-contentious in a maiden speech. It is an

alarming experience anyway without being contentious and having to see the frustrated hon. Members on the benches opposite who are unfairly inhibited from interrupting. Secondly, in so far as the hon. Member asked his own Chancellor of the Exchequer to make two major amendments to the Bill, I would consider that it was very non-contentious.
I also applaud the hon. Member's referring in such pleasant terms to his predecessor, Alan Hopkins, who was a friend of many of us on these benches. It is a good thing to remind ourselves occasionally that although we may have differences on the hustings and in the Chamber we shed them outside these four walls.
I congratulate the hon. Member very warmly on his speech. We shall look forward to hearing him again in this Parliament, and I hope that we shall hear Alan Hopkins in the next.
I am sorry that the Minister of Labour has now left us. I have seldom seen a Minister so unhappy after making an opening speech at the Box and I have never seen anyone so relieved and joyous when he had finished. Considering the nature of the occasion, this is a little surprising, because the Bill, which I deplore, is a prizegiving and we are discussing awarding the prizes, the premia, to various manufacturers. In other words, we are "dishing out the lolly" which, in another Bill, will be extracted from the wretched people who are employed in service industries.
I wholly deplore the principle behind the Bill, of dividing the industry and commerce of the country into manufacturing sheep and service goats, with a neutral zone of hybrids. At this stage, I ought to declare my own personal interest. I am a sheep and it is, therefore, with an even clearer conscience that I shall raise my voice and register my vote, against the Bill tonight.
The Chancellor and the Chief Secretary must be thoroughly dismayed at the bad Press which they have had, almost throughout, on this new tax and on the Bill. The only support I have noticed in the columns of the Press was the rather surprising support of Archbishop Lord Fisher of London for whom the experience of being canvassed for membership of the Playboy Club has clearly proved traumatic.
The Bill has had a terrific castigation from my right hon. Friend the Leader of the Opposition today. The trouble is that the right hon. Gentleman the Chancellor has taken a good tax, if such a thing exists, and spoiled it by making it selective. I was one of the few who welcomed the regulator, when introduced by my right hon. and learned Friend the Member for Wirral (Mr. Selwyn Lloyd), which, as my right hon. Friend the Leader of the Opposition reminded us, would have raised an identical sum. The Minister of Labour, in the most masterly understatement of this Session, said that the provisions of this Bill fell short of perfection.
I would have welcomed, under the present conditions, a payroll tax on the lines proposed by my right hon. and learned Friend the Member for Wirral, and I would have welcomed even more a true payroll tax on the total volume of salaries and wages payments. I would have welcomed even more the added value tax to which the Prime Minister is now turning his attention.
Of course, any new tax involves anomalies and injustices. We accept that. But if one makes a new tax selective as well, one piles anomaly upon anomaly and injustice upon injustice. The Chief Secretary said—I am paraphrasing him—that it must be a good tax because of the volume of protests.

The Chief Secretary to the Treasury (Mr. John Diamond): The right hon. Gentleman is not quite correct, as he can imagine. He is referring to a newspaper report.

Sir J. Vaughan-Morgan: I am delighted to hear it, because it conjured up the most alarming vision of Budgets framed with protest as a yardstick of merit. I am delighted that such careless rhapsody cannot be laid at the right hon. Gentleman's door.
Whatever happens, the task of the Opposition, once this Bill has been given a Second Reading, and if we have not been successful in defeating it, is to do our best to iron out those anomalies and injustices, even at the cost of making the Bill more complicated and, goodness knows, it will be complicated enough. We remember, in the Parliament when my party was the Govern-

ment, the sarcastic comments about "industry with its golden begging bowl". I think that that was a phrase used by one hon. Gentleman. We have now entered a new phase when the Chancellor fills the begging bowls with seven-and-six-pences and hands them round, in many cases to industries which have not asked for help.
It is all because of this jejune view of the economy, which divides the economy into those who make goods, who are good chaps, and those who serve, who are bad chaps. It entirely forgets that there is an enormous service element which can amount to 25 per cent. to 30 per cent. or more in many large manufacturing industries. There is not only the clerical and drawing staff; there is catering, transportation and other categories and there is now bound to be among all of these firms a new bias towards "do it yourself", an attitude not necessarily making for efficiency.
May I cite one example, namely, industrial catering. Many medium-sized firms do not have their own canteens, but employ an outside firm of caterers, which makes for greater efficiency. Now, the difference between running one's own canteen and employing an industrial caterer amounts, on the one hand, to a 7s. 6d. premium, and, on the other hand, to the 25s. a week Selective Employment Tax that the caterer will have to pay—a margin of 32s. 6d., which must make a considerable difference to the calculations of the manufacturers.
In my view, all such discrimination is wrong and muddle-headed. British industry is probably overmanned and now is to be rewarded for being so. There is too high a manpower content, and particularly an overtime content in the costs of British industry. The service industries, which contribute to indirect exports, banking, insurance, and so on, are probably more efficient, on the whole. If hoarding and poaching of manpower exists in industry it exists, above all, in places in the South-East and West Midlands, areas which are now to receive the maximum rewards under the Bill.
I want to ask the Chancellor to consider the rather odd social consequences of the Bill. I am not talking about categories of employment, but about the industries being selected. First of all, we


have had the case of the bake-houses raised. The Minister of Labour referred to shops where leather goods were manufactured. I hope that the Chancellor, or whoever is to wind up the debate, will get this matter of bakers with bakery shops quite clearly established. As I understand it, the provisions are that bakehouses attached to a baker's shop are specifically excluded from the premium and placed under the retail trade heading. I do not see how, without a major Amendment, which, I hope, will be moved by my hon. and right hon. Friends, they can be excluded. I have had at least two or three cases of the kind of men who seem to be men in need of support, but who will be very hard hit by this tax.
I want to refer to two major industries which seem to be rather startling objects for the charity of a Socialist Government. According to the Standard Industrial Classification Heading No. 231, brewing and malting employs 75,000 men and 19,000 women and I work out that it will receive a subsidy of £750,000 a year. I cannot feel that this is the Chancellor's intention. I believe that the right hon. Gentleman said that he would go down in history as the initiator of this tax. He is more likely to go down in history as the Chancellor who was good for Guinness.

Mr. Callaghan: What I really said was that long after I had been forgotten the tax would be serving a very useful purpose.

Sir J. Vaughan-Morgan: Guinness will still be grateful to the right hon. Gentleman for the tax advantages long after he has gone and is forgotten.
I want to raise an even more serious point. Heading No. 240—and here I shall not endear myself to the hon. Member for Bristol, North-East—relates to the tobacco industry, which employs 17,000 men and 22,000 women and will receive approximately £550,000 a year under the Bill.
I wonder what the Minister of Health, who is so busy trying to clip the wings of the tobacco manufacturers in other directions has to say? Let us remind ourselves that that figure compares with £1 million spent by the Medical Research

Council on cancer research and is many times the amount spent by the Ministry of Health on health education. This seems an appropriate moment to remind the House that Socialism is the language of priorities. The whole of this discriminatory principle is nonsense and quite wrong.
I mentioned earlier that my firm stood to benefit from the Bill. We reckon that, subject to Corporation Tax, we shall receive a gift equivalent to a ½ per cent. increase in the ordinary dividend provided that it is not eroded by wage or cost increases and provided that—[Interruption.] Of course it will be eroded, but I wish to express gratitude while there is still gratitude in me.
There are other difficulties to be ironed out. There is always the question of the public highway which divides establishments. It has come as a revelation to discover how many industrial establishments are divided by highways. Their numbers seem to be extraordinary. I hope that the Chancellor of the Exchequer will be able to put us at our ease by saying that a footbridge or fire escape will qualify as making two establishments into one, or, even better, under the Minister of Labour's definition, that one postal address would do, because in that case I.C.I. could probably solve its problems by having all its letters addressed to a P.O. box number.
A Government spokesman said on an earlier occasion that there are bound to be a few borderline cases in which the tax could operate unfairly. The Minister repeated the same argument today. The Government talk as if this were a frontier dispute between two major powers which might involve a family or perhaps even a village being on the wrong side of the line. But it is not. This is an important new Bill which establishes a brand new principle. It is not a minor frontier dispute which can be resolved in that way. There are chunks of territory involving entire industries being subsidised and entire professions being penalised, and categories of employment, disabled and retired will be seriously affected as they are involved in this hasty and ill-thought-out scheme.
The Treasury Ministers—and the Minister of Labour has repeated it—speak as


if this were a wonderful innovation which can be improved in subsequent years. But that may easily be too late, because distortion of the employment pattern could already have taken place. The Chancellor of the Exchequer is like a hangman who says to his victim, "I know that this is a crude method, but I will do better next time". It will be too late, and I think that it is too late even to think of making many refinements in the Bill.
Mr. Gladstone, when moving to reduce Income Tax to 9d.—oh, happy days—once described Income Tax as
creating a tangled network of man-traps for consciences".
We have had a succession of Budgets which have created networks of mantraps for consciences. Now we have yet another.

5.54 p.m.

Mr. John Ryan: I am grateful to you, Mr. Speaker, for giving me the opportunity to address the House for the first; time. It would be proper for me to continue a custom whose roots are very shallow in this Parliament and to make some mention of my predecessor. Mr. Charles Curran.
I cannot speak of Mr. Curran's behaviour in the House, but in the constituency of Uxbridge, which I represent, he is regarded with great respect because of the immense amount of constituency work which he did in the years between 1959 and 1964. He is a colourful and robust personality. Politically, I was practically diametrically opposed to all his judgments, but I am conscious of the great respect for him within the constituency because of the work which he did.
To many hon. Members, the General Election is something which is hidden in the past, but I should like to tell one story which is rather typical of Mr. Curran's undaunted and vigorous attitude. After the count, many people were very tired and went home to bed. Not so Mr. Curran. On the day after the election—in fact, only a few hours after the count—the Evening News carried a headline, "Why I lost to Mr. Fix-it. By Charles Curran". It was with some regret that I realised as I eagerly read the article that "Mr. Fix-it" was not myself, but the Prime Minister.

Hon. Members on this side of the House, when they think of my constituency, remember the name of the noble Lord, Lord Beswick, who, as Frank Bes-wick, represented Uxbridge for 14 years. I am very sensitive of the extremely high standard of constituency representation in Uxbridge. It is a great source of pride to me that I can dedicate myself to trying to continue to some degree Lord Beswick's and Mr. Curran's standard of representation.
I wish to address the House on two aspects of the Bill. My constituency is not part of the amorphous urban sprawl of Greater London, although it is classified as part of Greater London for the purposes of local government administration. It is very much a community, or a series of communities. It is rich with charitable and voluntary organisations which play a very active part in the community and enrich its life by their endeavours.
It is not without coincidence that the reverend gentleman who, only a few days after the Budget, criticised on television the fact that charities were to be subject to the Selective Employment Tax is a vicar in my constituency. This indicates the fairly strong feeling which ran through my constituency about the suggestion that charitable and voluntary organisations should be subject to the tax. I express to the Minister the sincere gratitude of my constituents for the fact that charities are to be exempt from paying the tax. Many of us on this side of the House feel that we want to develop the community and State provision in the social services. Yet we recognise that there are unique areas of service in which voluntary organisations are particularly qualified to work.
I was one of the hon. Members on this side of the House who signed the Motion calling for a review of the Charities Act, 1960. It was a source of regret to me, when pressing for exemption for worthwhile charities, to know that, at the same time, we were arguing for the exemption of charities which, in our judgment, were less worth while, less community-orientated, less outward-looking and which did a less valuable job in community service. Nevertheless, I take the point made by the Minister of Labour today that this is a long-term project which must be considered when Parliamentary time is available and cannot be


the subject of a debate on the Finance Bill.
One anxiety which I have about the Bill—and I feel that it is shared by many hon. Members—concerns the treatment of part-time workers. I wish that a system could be devised by which the tax could be levied pro rata on part-time workers. I know that the administrative costs would be constant and that it would not be possible to take the pro rata measurement to the ludicrous proportion of covering people who worked for only two or three hours a week. Nevertheless, there are many people—widows, pensioners, and mothers with young children—who cannot work full time, but who do a valuable job in industries which are starved of labour, particularly in the Greater London area, and whose employment will be seriously jeopardised if the tax is levied on the basis suggested, specially in retail distribution.
It is a known fact that in the Greater London area there are many shops whose proprietors employ three part-time workers—old-age pensioners, widows, and so on—to do the job of one person. The customers of those shops and the people involved will suffer in the way that the tax is proposed to be levied. I should be grateful if a method could be found of giving help to those people pro rata. I know the arguments, but it is impossible to suggest that such people are suitable for industrial retraining or that they could do other jobs. That is incorrect. They do the only job that they are capable of doing, and, if they find their employment jeopardised, there will be a serious social consequence. That is possibly the only feature of the Bill which causes me very great regret.
In my own area, we are absolutely starved of labour. Hon. Members representing London constituencies will know the problems faced in local government services, for example, which are about 30 per cent. short of establishment levels. We are short of labour, and we welcome any device which will bring more labour on to the market and relieve pressures, particularly on the local government function.
My area and its neighbours on the outskirts of London are subject to the London Government Act which was opposed by my party in the House and

opposed by the Labour Party in the constituent areas of the borough. Nevertheless, we have to work the Act, with the transfer of functions involved, and that has accentuated the manpower difficulties which will be faced. We are grateful for any measure which will increase the labour supply and help the local authorities to do their job, which is so necessary to the community. If we could find some way, it would be met with gratitude in my constituency.
I welcome the Government's policy, and I hope that they will continue to cut our defence commitments overseas and thus ease the labour position, in the sense that it will help alleviate pressures at home. I welcome the Government's efforts, and I hope that they can continue in this direction. They will be met with gratitude throughout the country.
Like most hon. Members, I have been met with pleas from specialist groups about the tax. In all the noise and confusion, it is easy to forget that most of the people in the country support the tax and the Government's efforts. I assure the Minister of my support and that of my constituents for the forward-looking nature of the tax, which may help to solve some of our labour problems.
I thank the House for its courtesy.

6.3 p.m.

Mr. W. H. Loveys: It is always a pleasure to follow an hon. Member who has made his maiden speech, and it is a particular pleasure for me to congratulate the hon. Member for Uxbridge (Mr. Ryan). Many hon. Members in the House will be envious of the fluency with which he made his speech. I hope that I shall not be thought to be controversial if I say that that fluency almost ran away with itself when he said that he thought that most people were in favour of the tax.
However, I am glad to congratulate him on his speech. Most hon. Members remember his predecessor, Charles Curran, to whom he referred most amiably, with great affection. It is, naturally, with some reservation that I have to say that we hope to hear from the hon. Gentleman again frequently. He will obviously succeed Charles Curran in looking after his constituency extremely well.
The hon. Gentleman referred to the charity and community organisations in his constituency and the fact that they will be relieved by the exemption of charities from the tax. He expressed anxiety about part-time workers, and I hope that the Chancellor will deal sympathetically with his suggestion of treating part-time workers by some form of pro rata system.
I wish to join my right hon. Friend in deprecating the manner in which the Bill has been introduced as a Ministry of Labour Bill. I think that most of the House felt a certain amount of sympathy with the Minister of Labour when he introduced the Measure. Perhaps he sounded most convincing when he said that it was a financial Measure, when he said that the provisions will fall short of perfection, and when he said that he admits that many anomalies will be created.
I can understand why the Government are reluctant to allow the House to give full consideration to the Selective Employment Tax and have introduced it as a Ministry of Labour Measure. All hon. Members must be aware of the tremendous number of representations that have been received from many sectors of the community. Public concern about the tax is so strong that I should have thought that there were the best of reasons for allowing a full discussion, instead of leaving it merely for Amendments to the Finance Bill and for Amendments during the Committee stage of this Bill.
The Explanatory Memorandum makes it clear that the purpose is to implement the proposals in Command Paper 2986. Never before can there have been a Bill published which varied so very considerably from the original White Paper, which was to explain the Bill to be introduced. What a shock that original White Paper was to the House and to the country, and how it highlights the tremendous haste with which the Measure was introduced. The refunds to charities covered by Clause 5 of the Bill and the special refunds to certain households under Clause 6 are most welcome, because they remove some of the original injustices in the White Paper.
The more reasonable approach to agriculture, horticulture and forestry are also most welcome. I see the Parliamentary Secretary to the Ministry of Agriculture in his place. Perhaps he can explain why neither he nor his Minister made any representations, before the White Paper was published, about the extraordinary suggestion of the Chancellor of the Exchequer that, wherever practical, repayments would be made under the Price Review machinery. Anyone who knows about that machinery knows that it would be quite impossible to deal with it in that manner.
There are two points which I should like to make. The first is about the type of selection used in Clause 1 of the Bill, which deals with the payment of premiums to manufacturing industries. The second is about the anomalies existing by the exclusion from Clause 2 of certain industries which get a direct refund.
I say very little about the type of selection, and I do not intend to go into detail at all, but I should have thought that the criteria to be used in this type of Measure for industries qualifying for premium payment would be the extent to which those industries helped the economy, with special reference to those which helped the balance of payments position. The Bill makes it clear that the qualification for a premium is simply to be whether the industry is included in Orders 3 to 16 of the Standard Industrial Classification, added to which there are certain industries which are engaged in scientific research. That seems to be far too indiscriminate, or far too nonselective, and it includes too many manufacturing industries which are really of no value to the economy of the country.
Do we really want to encourage over-employment in those industries at the present time? We all are familiar with the term which has been bandied about so much of late, the "candyfloss society". One could mention many industries which do not need these premiums at all. I should have thought that the giving of such indiscriminate coverage to the premiums is sufficient reason to ask that the Bill be taken back and redrafted so as to give support by way of premiums only to those industries which are of real importance to the economy of the country.
It is the exclusion of many industries from Clause 2 which highlights many of the anomalies and injustices of the Bill. For example, is not the tourist industry, including the hotel and catering industry, the biggest dollar earner, and is not this industry at least worthy of being included in category 2?
We have heard a great deal about this industry during the Committee stage of the Finance Bill, and no doubt we shall hear a great deal more about it. I understand that at the moment the President of the Board of Trade is having discussions with the British Travel Association about the position of this industry in relation to the Bill. The Minister of Labour expressed concern about this industry this afternoon, but I wish that he had said something about how these talks are progressing. The Minister gave not the slightest sign of helping this great industry, and it is one which has suffered a great deal at the hands of the present Government.
People in the industry have lost their investment allowances. They have had to pay Purchase Tax on the tools of their trade, from which so many other industries are exempt, and now they will have to bear the full brunt of this tax. It is time that the Government acknowledged the simple fact that foreign currency spent in this country on the tourist industry, £ for £, has the same benefit as currency earned by exporting goods.
Another industry which is particularly hard hit is the building and construction industry, which is to pay the full tax. I have had more correspondence from people engaged in the building industry than from anyone else. Surely the building of homes for the workers is as important as the work undertaken by the workers themselves. Furthermore, what about the building of factories which are so important to our economic development? Is it right to discourage labour requirements in this industry? One would have thought that on housing alone the Government's failure to meet the housing targets would have given the lie to this.
Another anomaly in the Bill to which reference has been made by the hon. Member for Uxbridge, and others, is the question of the full tax which has to be paid in respect of part-time workers. I

have already given my support to the hon. Gentleman on the possibility of introducing a pro rata system. Attempts have not been made to help this section of the community at all. I understand that during the Committee stage of the Finance Bill the Chancellor said that he hoped something might be done for part-time workers, but not this year.
This is not good enough. No doubt attempts will be made to remove this anomaly in the Finance Bill when it is further discussed in Committee, but, as the Measure before us is a Ministry of Labour Bill surely the Minister in charge must be aware of the effect which this Tax will have on the elderly and disabled, and also the fact that nothing has been done to help part-time workers? There are bound to be redundancies among these people, and surely encouragement should be given to the employment of this section of the community, not only on humanitarian grounds, which may be the best possible grounds, but also because they release ablebodied people for more vital work?
Why should employers be forced to pay what they refer to as a double tax? Many employers say that they have to employ two part-time workers, and they therefore have to pay two lots of tax instead of paying it only once as they would do if only one person were employed full time. They are, in effect, paying double tax.
Another anomaly has been brought to the attention of the House by my right hon. Friend the Leader of the Opposition who referred to those good ladies, the Mrs. Mopps. We have all had representations from contract cleaners about them. Apparently 90 per cent. of these ladies are part-time workers. Many are married women, and are able to work and help the economy. They do so on a part-time basis, and earn on average about £3 10s. a week. This tax will mean an 18 per cent. increase on the wage bill for these people.
Other anomalies which should be sorted out are the exclusion of some educational establishments which do not happen to be registered as charities, and private nursing homes. The position has not been made clear about how certain establishments can become registered as charities, or be accepted for a refund


of this tax. We want a lot of clarification about this. Many private nursing homes do not know where they stand at the moment. In my constituency there is an establishment which does a magnificent job for a large number of severely handicapped children, but it is not registered as a charity. Does this mean that it will have to pay the full tax? It would appear that it will, because it is not in the schedule of qualifications for exemption.
I would not oppose every form of Selective Employment Tax Bill. The tax from which this Bill emanates at least introduces an element of simplification into the tax structure, and I welcome this. Year after year we have seen Chancellors come to the Dispatch Box and say that we must have a simplification of the tax structure, but they have not done much about it, and, in fact, have not been able to. The present Chancellor said much the same when he first came to the Dispatch Box and then immediately introduced the most complicated Finance Bill ever, bringing in Corporation Tax and Capital Gains Tax. This time he has done something to simplify the tax structure, but let the tax be selective in the right sectors or the objectives will never be achieved, and the anomalies will remain.

6.17 p.m.

Mr. Patrick Gordon Walker: I start by adding my congratulations to my hon. Friends the Members for Bristol, North-East (Mr. Dobson), and Uxbridge (Mr. Ryan), who made such admirably fluent and forceful maiden speeches. Listening to them made me rather ashamed of the time I made my maiden speech, more years ago than I like to remember. They put robust points to my right hon. Friend the Chancellor of the Exchequer, and I do not doubt that he will give very careful thought to them. I am sure that hon. Members on both sides of the House will want to hear from my two hon. Friends again.
The hon. Member for Chichester (Mr. Loveys) made a rather important and novel point, namely, that there should be a Selective Employment Tax which discriminated in favour of industries that helped the economy. This is an interest-

ing point, but I cannot conceive how one would choose the industries, and I hope that when we discuss the Bill in Committee the hon. Gentleman will table Amendments which will enable us to find some machinery by which this can be done. He would have to trust, to an extent which I do not think he would like, the man in Whitehall, but if he can think of a way of dealing with this problem it will be interesting to hear it.
It seems to me that as far as a tax can be a good one the Selective Employment Tax is a good tax. I do not think that this is the occasion to discuss its merits as a levy. That aspect must be discussed on the Finance Bill, but one merit which emerges from the Bill before us is that it provides a subsidy, in effect, to our manufactured exports. It does this in a rough and ready way because it does not discriminate between export and non-export manufactures. But that is not the fault of the Bill. That is the fault, if this is the right way of putting it, of our international engagements, which do not allow us to discriminate between export and non-export manufactures. In fact, the Bill represents the only quick way of giving a subsidy to the 30 per cent. of our manufactures which are exported, in a way that is within our international agreements.
It is true, as the right hon. Gentleman, the Leader of the Opposition said, that the tax hits our invisible overseas earnings. Banking, financial and similar institutions are not qualified for refund under the Bill. I wish to make two observations about that. The first is that the impact of the tax upon these great institutions will form a very small part of their turnover. Secondly, and more important, the time has come when we have to get a better balance between finance on one side and industrial production on the other.
We have for too long, particularly under the Government of hon. Members opposite, acted on the dogma that what is good for the City must be good for Britain. This is not a proposition that one can accept without argument or qualification. It is clear that the City makes very great contributions to our exports, and that we must pay attention to these, but not to the extent that we


allow the interests of the City to harm our industrial production.
The Bill helps to achieve a rather healthier balance between production, the making of things, on the one hand and finance, including invisible earnings, on the other.

Mr. J. Bruce-Gardyne: I am following the right hon. Gentleman's argument carefully, but is he not really saying that the purpose of the Bill is to clobber invisible exports and thereby somehow to help visible exports? Can he explain how this can be done?

Mr. Gordon Walker: I would not agree that the purpose of the Bill is to clobber anything. Its purpose is to give some advantage to manufacturing industry and in doing so it discriminates somewhat against the invisible activities and earnings and so on.
I was saying that for too long the balance has been the other way and that it is right and proper that we should redress the balance and that I am glad that we have a Government that thinks seriously about manufacturing industry, production, and not automatically about the interests of the city at the expense of manufacturing industry. I am not against the City, which makes very great contributions to our economy and our exports, but the balance has been wrong and it is now somewhat better. As various people have said during the debate——

Sir Tatton Brinton: I am very grateful to the right hon. Gentleman for giving way. I apologise for interrupting him again so soon. As I understood him, he said that the balance of taxation was wrong as between manufacturing and service industries. I should like him to explain why.

Mr. Gordon Walker: I did not say the balance of taxation; I said the balance of general policy. I said that the balance of policies was based too much on the doctrine that the City must always be listened to. This is a taxation Measure and it helps to redress the balance.
Many hon. Members have said in the debate that any new tax must have inequities and must need refinements and adjustments. Some are in the Bill, and my right hon. Friend the Minister of

Labour has said that further ones will be made as we go along. But the Government should resist pressure for too many changes and alterations to the principle of the Bill. Those who attack the Bill and ask for particular concessions and considerations should compare it with the effects that would have resulted from any alternative tax. Neither the Leader of the Opposition nor anyone else has said that it was wrong to raise this sort of amount of revenue. The question, therefore, is which tax one uses to do it. If one says that this is a bad tax, and that it has this and that effect, one must compare it with the impact on industry of, say, an equivalent increase of Purchase Tax.

Mr. Winterbottom: Is my right hon. Friend not assuming that existing taxes are the only alternatives? There may be other alternatives.

Mr. Gordon Walker: Certainly there are some, and I shall come to some in due course. Something had to be done now to raise this sort of revenue and this is a simple tax to raise. It had that great merit, although it is not quite so simple to pay back. Therefore, it would be wrong of the Chancellor to allow the tax to be too far eroded.
However, the case of Reuters merits very careful consideration. The tax would have a crippling effect upon Reuters, which plays a unique and indispensable part in advancing British views, knowledge and information all round the world. It is one of the most important links of Commonwealth. Reuters is today very hard put to hold its own not only against the large American agencies, but even more against the heavily subsidised foreign news agencies.
It would be a shortsighted economy and a shortsighted raising of Revenue to hamper and disadvantage Reuters at a time when it is very important for us to play our part in the world by expanding our influence and finding instruments for doing that. I do not think that Reuters should get a premium. It would be very wrong if Reuters were subsidised. A great deal of its standing in the world is due to its independence. But there is a very strong case for putting Reuters into the category of the neutral ones, the mules, the ones who get back as much as they pay out.
I now come back to the main principle of the Bill. As I see it, this is part of a radical and overdue reform of our fiscal system, and a reform which will be carried further year by year under this Government, I am sure. As part of the further reforms which are to be made, I should like to see the introduction of a value added tax. This would broaden the tax base a great deal, as the Selective Employment Tax does, and it is desirable in itself to get away from the rather narrow base of taxation which we have had in the past.
It would enable us to direct precisely to exports the rebate of the tax. It would also be a tax on the model of Common Market taxation. It would allow a valuable simplification of the Selective Employment Tax. If we had a value added tax that enabled us to make the rebate to exporters, which we can also make under this Bill, but to do it more precisely, more directly and with complete clarity, there would then be—I do not think that there is now—a case for turning the Selective Employment Tax into a flat payroll Tax.
Apart from special exemptions for charities, and so on, one would not need the elaborate machinery for paying back in general, and for paying premiums, and so on. A payroll tax would bring general pressure to bear on our whole economy to save wasted labour. There is a wasteful use of labour in very many parts of the economy, including, as we all know, parts of manufacturing industries, too.
I know very well the arguments against the proposition I am making, and they are very powerful. One is—and this is one of the basic arguments underlying the whole Bill—that manufacturing industry makes all the labour-saving devices, including those used by the service and distributive industries, and that, therefore, it should be given an advantage. It is from the manufacturing industries that the labour-saving devices come that are used by the industries which the Bill is designed to press upon, in particular, the service industries.
This overlooks the fact that manufacturing industry is also often guilty of wasteful use of labour. It is important that the pressure to save labour should be brought to bear on the whole economy. If we made this change the Selective Employment Tax, converted into a pay-

roll tax, could operate at a much lower level than it now has to with all these repayments and premiums to pay. Labour is our most scarce and precious resource, and it is important that the Government should do everything to see that it is not wasted.
There is also force in the argument that a flat payroll tax would be ineffective because it would put up the cost of labour equally all round and therefore would be in a sense self-cancelling, and that it would not have an effect upon one part of industry as against another, and would not lead to a saving of labour because everybody would be bearing an equal burden.
But that is an over-simple argument. If we had a flat payroll tax its impact would vary according to the relative productivity of labour. The tax, if imposed at a flat rate, would form a smaller percentage of the wages of a highly productive worker than it would of the wages of a less productive worker.

Mr. Winterbottom: It would be exactly the same.

Mr. Gordon Walker: No—the percentage would be less. If it is a flat-rate tax a man who produced, say, £100 worth of goods a week would cost his employer less than someone who produced £5 worth of goods a week. It would be a flat-rate tax, but the weight of it must vary with the productivity of labour. Any firm that used labour inefficiently would pay an effectively higher rate of tax than would a concern which used labour efficiently. The payroll tax would, therefore, provide a highly effective stimulus, throughout our economy, to the introduction of labour saving machinery, which is the purpose of the Bill.
Our policy of full-employment means that as long as we maintain it—as we are all determined to do—we will have a permanent shortage of labour. That is what full employment means. We must therefore find ways of using our labour, year by year and decade by decade, more efficiently and effectively. In present circumstances, when we had to raise this money quickly, and we did not want to impose an increase within the very narrow basis of present taxation, this tax, which has a good many of the effects of


a payroll tax, was a good one to introduce. It has many merits, and I stoutly defend it, but I look forward to the further evolution of our taxation system in which the kind of changes that I have been outlining will come about.

6.33 p.m.

Sir Charles Mott-Radclyffe: I have listened with great interest to the right hon. Member for Leyton (Mr. Gordon Walker). I followed his arguments very closely and I thought that he made out a good case for putting Reuters into the "neutral" category. As he said, Reuters provides a very good service. It is very well known. But it has to compete with comparable news agencies of other nations, some of which are subsidised.
That is a strong argument, but precisely the same argument can be applied—and in my opinion with even greater strength—to British insurance companies. The right hon. Member should know better than anybody, as a former Foreign Secretary, that these insurance companies provide an immense revenue in foreign exchange. But they also have to be competitive. They do not have an absolutely free run. It is a question whether the terms and rates of premium that they offer are competitive with those of foreign insurance companies.
The Selective Employment Tax will bite very hard upon insurance, banking and other competitive services, and they may well find themselves at a considerable disadvantage.

Mr. Gordon Walker: Reuters is a nonprofit-making concern, run by the newspapers, and is in a different case from the great firms which manage to make profits and for whom this tax will represent only a very small additional expense.

Sir C. Mott-Radclyffe: I am not concerned whether or not these organisations make profits. It is no crime for insurance companies or banks to make profits. I do not know what good is done to sterling by making losses. My point is that they must be competitive to survive.
I very much doubt whether the House has ever debated a Measure more ill-conceived, more hastily thought out and more impracticable than this one. At least, if ever it has it must have been a long time ago. We all know the origins of the

Bill. The Inland Revenue was on its knees. It could not cope with the complexities of the Capital Gains Tax and the Corporation Tax in the last Finance Act. Its officials had more or less to be bribed to carry on. They threatened to go on strike. They said, "Pay us more to work this Capital Gains Tax, or else …"—and the Government had to give way.
The Inland Revenue officials were so overburdened with the tax tangle that they did not understand any more than the Treasury Ministers who brought in the Finance Act of 1965. So this delightful S.E.T. was devised. It did not place any additional burden on the already overburdened Inland Revenue officials. The impracticabilities, anomalies and absurdities were patently obvious from the beginning to almost everybody except the Ministers. They stuck out a mile in the Second Reading debate on the Finance Bill.
The Chancellor had to give way on agriculture, horticulture and forestry. He could not do otherwise. He had second thoughts. What a pity he did not have some thoughts beforehand. Anybody who knew anything about agriculture, horticulture or forestry knew that this tax, propagated by the Chancellor, was a nonsense, and that agriculture could not conceivably recoup from the Price Review what it would have to pay as a result of this tax. Everybody except the Chancellor knew that horticulture and forestry did not have a Price Review. He had to give way on those, too.
Similarly, he had to give way on charities. He could not do anything else. How, in logic, could the Chancellor have defended a fiscal system which gave a premium to the manufacturers of tobacco, pin-tables and flick knives, not to mention "purple hearts", but penalised the Society for Cancer Relief, the Red Cross and all charities in that category, and pretty well every church organisation? How could anybody, in logic, defend that kind of taxation principle? The Chancellor could not, and he had to give way.
We are still in an almost incredible tangle over the tax. The Chancellor has made certain very proper concessions but he is not yet out of the wood. We shall want a lot of convincing that there is a clear-cut dividing line, in the Bill or anywhere else, between the process of manufacturing something and the process of


distributing or servicing it. This line is incredibly blurred, and in many respects the Bill makes the position even more complicated.
Let us suppose that X hundred men are employed in factory A, making Bovril or brilliantine, Y hundred men are employed in factory B, next door or slightly separated from factory A, making the bottles in which to put the Bovril or brilliantine, and Z hundred men employed in another part of the factory or in another factory a few miles away, all belonging to the same firm, making the tops for the bottles. It is no good having a bottle without a top. All those are in the first category and would get the premium. They are manufacturing something. Also in this category would be the wages of the man who drives the lorry from A to B with the bottles to be completed with tops. I suppose that he is all right, as would be the lorry driver who finally collects the finished article in a bottle with a top on it.
But directly another lorry driver takes the bottles to a shop in the High Street where they can be sold—it is no good manufacturing brilliantine or Bovril unless it can be sold—this becomes distribution. I do not understand the sense of this. Perhaps the right hon. Gentleman can enlighten us. I do not understand how this rigid dividing line can be drawn between manufacturing and services.
I also wonder whether it is true that it is in the manufacturing industries that there is a shortage of labour and in the service industries that there is overmanning. That principle could not apply to the profession of valuers or chartered accountants. The Government very wisely and promptly excluded the Civil Service.
I am certain that this tax will hit very hard precisely those whom it ought not to hit. It will hit at just that category of people who are least able to bear the extra strain—the old, the infirm, the sick and the lonely. There are many hostels in this country which cater for the crippled, the lonely and the old, as well as small nursing homes and hospitals for the incurable. Many old people who have fallen on evil days, partially crippled, living on a small fixed income supple-

mented by a pension, need someone to look after them. We all know such cases, not only among our own acquaintances but in our constituencies, wherever we sit in the House.
It is true that some, though not all, in this category are included in Clause 6. However, the people concerned, whether a group of trustees managing a hostel or a man or woman living by themselves and needing someone to look after them because of their disability, have to pay out each week 25s. or 12s. 6d. for each employee. This is a considerable extra burden. Where will the money come from?
I know that they can recoup it later in several months, but I suspect that the machinery for recoupment will be singularly complicated. Many old people living by themselves will find it difficult to get the money back after they have paid it. They find it difficult enough to fill in their ordinary Income Tax returns. It will hit these people very hard, and I am not impressed by the argument that they will get the money back. They will have to wait four or five months after having paid it before they recoup the money. This is where hardship will come in.
Secondly, the tax will fall on a large number of old employees in all walks of life who, perhaps, are within two or three years of retirement, and who are kept on not because they are economic in the literal sense, but because the employer feels that he could not possibly dismiss them within two or three years of their retirement. However, with a bill for an extra 25s. a week for each such employee, what is marginally feasible in terms of economics now will be quite impossible. Many of these people will, therefore, be discharged, but where do the Government suppose they will go? Do they think that they will get a job in the British Motor Corporation? This is cloud-cuckoo-land and not a sensible fiscal policy.
Thirdly, the Selective Employment Tax will cripple many sports clubs, it will certainly cripple, if not bankrupt, some of the county cricket clubs, it will be a severe blow to many independent schools, it will increase the cost of housing, it will increase the cost to every motorist who has his car serviced, and it will put up the prices in every hotel and restaurant.
I hope that the right hon. Gentleman will say something about the administrative cost and the machinery for repayment. My right hon. Friend the Leader of the Opposition mentioned this point in his able speech. What about farmers? A farmer employing four men will have to pay an extra £5 a week. However, if he is overdrawn and the bank says that, because of the credit squeeze, it cannot increase his overdraft, how will he find that extra money which will be recouped later on by some rather complicated machinery? What will all this cost in terms of administration?
Millions of man-hours will be worked by hundreds of thousands of men, some very able indeed, in the Inland Revenue and among chartered accountants, who should be devoting their abilities to increasing the nation's wealth, which is the really important objective. In collecting and paying out, they will all spend millions of hours locked up trying to weave their way through this tangle of incomprehensible taxation. This is not creating fresh wealth. What about the credit squeeze and the banks giving fresh advances to farmers? What provisions have the Government made? This is something which they did not consider.
The Chancellor rightly talks about Britain's image abroad and the need to bolster sterling, and says that the economy is overheated. The Bill is supposed to be a very slick method of taking the net sum of £300 million this year out of an overheated economy. Shortly, a Bill will be introduced to nationalise the steel industry, which will inject another £600 million into an overheated economy.
I do not understand what sort of image of sterling, or competence, or confidence, the Chancellor is trying to create. I do not believe that he understands either. For that reason, I shall willingly vote against the Bill.

6.49 p.m.

Mr. R. E. Winterbottom: I have one regret, that the Minister of Labour and the Leader of the Opposition, who is an ex-Minister of Labour, are not present. What I have to say concerns the Ministry of Labour's relationship with the Selective Employment Tax, and I believe that both right hon. Gentlemen would have been in-

terested. I should have liked to hear from the Leader of the Opposition something about the policy of the Conservative Party. There was a time when the Conservative Party was tinkering with the idea of a payroll tax. I wonder what happened to it.
I would have preferred a payroll tax to the Selective Employment Tax. I hear my hon. Friends behind me muttering, but I assure them that if one analyses the subject and makes a mathematical computation one sees that a flat rate payroll tax would have great advantages over S.E.T. as we have it, particularly when one takes into account what is happening in the distributive trades. It is obvious that an employer who must pay 25s. a week for a man who is managing a shop taking £1,000 a week will be hit harder than an employer who must also pay 25s. a week for a man who is managing a shop taking £2,000 a week.
We have been told that S.E.T. is designed to raise revenue as well as to do various other things. I would have preferred an alternative means of raising money—alternative to the accepted methods—although, if it came to it, I would consider a rise in the price of beer, tobacco and the rest of it. I hope to show, however, that there are alternatives which might have been used in place of the laborious S.E.T., which is nothing but an anomaly-creating tax.
Let us consider S.E.T. in its broader aspects. Its administration, and rebates and so on, will cost £850 million. Thus, the Treasury will have to raise between £900 million and £1,000 million if it is to get its estimated £85 million in revenue out of the tax. Is this not a large outlay for such a poor return?

Sir Keith Joseph: Would the hon. Gentleman repeat those figures?

Mr. Winterbottom: I do not wish to detain the House. The right hon. Gentleman will find the figures in the Bill.
If my right hon. Friend the Chancellor loses his job as a Minister, because of the operation or inefficiency of S.E.T., I assure him that he will not get another job in commercial circles. S.E.T. is anything but a business proposition. The revenue it will take out of the economy represents three-quarters of 1 per cent.
of the estimated total retail sales of the distributive trade for 1970, that estimate being £12 million. The Government have not taken into account what happens in other commercial spheres, such as banking and the professions. I would not have objected to S.E.T. had the line of demarcation been differently drawn, remembering that the professions swallow up more manpower than any other industry. That has been the trend in recent years. I will not give details. Hon. Members know where to find the figures.
One of my main criticisms of the Bill is that, having strongly supported the Government's prices, incomes and productivity policy from the beginning, the policy as defined so far does not go as far as I would like. I would like to see more consideration given to job evaluation. However, such as it is, I support the policy because, if it is worked properly, it will ensure that the lowest wage earners benefit and that the gap between the lowest paid and the highest paid is at least slightly narrowed. I still believe that the policy will do that.
Having said that, I must make it plain that an employer in the distributive trades is bound to use S.E.T. as an excuse for avoiding granting reasonable wage demands. He will rightly argue that the tax has bitten deeply into his already narrow gross profit margins, so much so that wage increases are out of the question.
From a practical point of view, the Bill is useless. How can Sainsbury's or, frankly, the Co-op pay S.E.T., 25s. for every employee, and, taking into account the narrow profit margin in the distributive trades, also pay an increased living wage? If I were an employer in distribution I would argue that the Government had indicated their wish that my workers should be driven from distribution into other trades. I would go on to argue that S.E.T., combined with other Government action, prevented me from giving increased wages. I therefore warn the Chancellor and the Minister of Labour not to blame me if S.E.T. creates strikes in distribution. We are not far off that already.
Most S.E.T. will be extracted from the distributive industry and, in the end, that money is bound to be passed on in extra prices to the consumer. In an

industry in which one cannot have proper overtime rates, in which such rates obviously cannot be plussed-up, and in which the basic rates of pay for skilled people are in some cases well below average earnings in the rest of the country, this is bound to be a disastrous tax.
If the Government create conditions whereby the ordinary wage-fixing machinery and the process of arbitration cannot satisfy modest wage demands, there will be industrial disputes, and one cannot get away from that reasoning. I have been hoping that the Prices and Incomes Board would help to narrow the gap in earnings between those employed in distribution and those employed in production. I am dismayed to think that the Government's policy may be the means of promoting industrial strife. I warn the Government that my fears are well founded and that there will be one hon. Member in the House whose voice against their industrial policy will be most bitter and penetrating if that happens. If this tax had not the anomalies I have mentioned and had within it something constructive to help in the reorganisation of the distributive trades, I would be satisfied, but that is not so. It deals with the wrong side of distribution in terms of penal taxation.
I use an illustration. There is a firm in this country—I shall not mention its name because that would not be fair—which is making cosmetic preparations. They are expensive, they are good, and they are sold by charming ladies selected from every locality because of their beauty—[HON. MEMBERS: "Hear, hear."]—I agree wholeheartedly. These ladies sell the products in the homes of people. The products are not sold in shops. The contract between the firm and the saleswomen indicates that they are self-employed. They pay no Income Tax.
If the Chancellor wants to know where to find £85 million, I could tell him where it could be found from distribution without this tax. If I were inclined towards monetary gain I could offer to the Chancellor at the rate of ½ per cent. commission for every pound I made, and gain a fortune in 12 months. In this cosmetic firm they pay no Income Tax, no insurance stamps, and they will pay no Selective Employment Tax. They are


making goods and will be paid the rebate for doing so.
Then there is Littlewoods, a mail order firm, of which there are thousands in this country. How will the Chancellor deal with the woman who receives a catalogue, calls in her neighbours, and selects a dress or piece of hardware for which she pays so much for 20 or 38 weeks in a club? Are they to be brought within the terms of this tax? Not on your life.
How are we to deal with the man who is as near as possible to the sands at Blackpool, Brighton or Southsea with a shop selling rock to destroy the teeth of our children? In the premises behind the shop he is making the rock. He can get recoupment because he is a manufacturing agent. These are facts and I am afraid the Chancellor has something to answer for. If he wants to know where to get his revenue from distribution, I can tell him.
I have in my possession now a circular which shows that in the world of distribution what I have said about a cosmetics firm has spread to the distribution of milk and coal. The Chancellor can have this circular. The old days of the farmer going round with his milk float have gone. The milk now comes to a central dep6t where it is pasteurised and it is then delivered in bottles. The roundsman is paid a wage and sometimes commission, but now that dairy firms will have to pay the Selective Employment Tax, they have decided to deliver milk on the basis of individual contract with these people who will be self-employed. And they will avoid the tax.
The Chancellor will lose more in terms of Income Tax than he will ever gain in terms of Selective Employment Tax. These things have to be faced. Unfortunately, no member of the professions, no member of the Civil Service can be expected to know the complications and intricacies of the distributive trades. Anyone who knows a great deal about the distributive trades knows very well that, before this Selective Employment Tax has got under way, the Chancellor will have found that he has been kidded all the way.
The Chancellor is not touching the major sections in distribution. These are facts which the Chancellor has got to

know. There are 577,000 retail distributive outlets according to the census of 1961. There are 40,153 hairdressers and about 38,000 of them have individual shops controlled by self-employed men. Those 38,000 will get away scot-free from Selective Employment Tax and the remaining 2,000 will have to pay. There are independent establishments, usually family concerns, comprising 83·4 per cent. of the retail distributive outlets. In most cases those will not pay the tax. Most of the £83 million that will be the net profit to the Exchequer as a result of the tax will come out of the bigger units in distribution—units which are doing a first-class job in terms of service—in place of those who will not pay the tax. Is that fair?
This situation lends itself to quite a lot of things which should not be repeated in this House. If I could repeat them I would lead hon. Members into the complicated muddle we have got into in distribution which now will be even more complicated. In the National Plan we were told that we must rationalise distribution and we must encourage part-timers to take the place of full-timers who can then go into productive work. That is reasonable and sensible, but if the Government want to do that they are going about it in a funny way. This is a subject which should claim a high priority when we are studying the manpower of the country so that the advantages of the manufacturing industries and our export possibilities shall not be frittered away by weaknesses of distrition.
This brings me to the question of part-time workers about which there have been several appeals made today and I add my appeal to the others. At the moment the Chancellor may be adamant, but I want to add my appeal from the point of view of the job which must be done by part-timers in distribution. If anything should happen to prevent the employment of part-timers in distribution the distributive system will collapse to the spivs and drones who are prevalent; and the Government will be responsible. I am a member of a union which has known this for along time. The union does not like part-timers working in shops, because it is difficult to negotiate wages for them, but it has recognised that it must countenance part-timers if it is to


play its part in building up our economy again. The union has accepted part-time workers as it accepted work study and the rationalisation of distribution. Is this to be thrown away for an idea which should never get off the ground? Most distributive establishments are already under-staffed. Now most of them will have to lose their part-timers.
It would be ironical if the tax on part-timers became the major cause of the retail distributive trade failing to meet the requirements of the National Plan. Some day someone who is more than an economist, and who perhaps has a human touch, will realise that production and distribution are two wings of something which must fly together in balance. When organising our productive capacity we must also organise our distributive capacity. The Government must deal with the shops. The time has come when the Government, instead of tinkering with the problem of distribution so as to divert manpower from distribution to production, will have to rationalise distribution by securing that the number of shop; in relation to the population of any area is far less than it is today. That will be a tremendous task. If this tax brings to the fore the need to pursue a policy of understanding, of examination, and of rationalisation of the distributive trades along the lines I have suggested, or perhaps along other lines, it will be the only thing I can say in favour of the tax.

7.14 p.m.

Mr. Harold Gurden: Let it be noted that not one speaker so far has expressed unqualified approval of the Bill, except that it may be claimed that the Minister of Labour did so. However, I believe that an examination of his speech will convince us that he was not in favour of the Bill. He fully admitted its imperfections, as he called them. The word "imperfections" is a very mild word to describe the mischief of the Bill. The presence of Clause 9 seems to be a recognition that mistakes and anomalies will occur.
I warmly congratulate the hon. Member for Sheffield, Brightside (Mr. Winter-bottom) on his excellent speech. We on this side congratulate him on his honesty.
The opinion is widely held that the Chancellor, having decided on this form

of tax and having heard all the criticisms of it, must have wished to withdraw the Bill. It is a tragedy that he did not have the courage to do so. I cannot believe that the Government really wish to proceed with the tax now that they realise all the tragedies which could occur. In the past few months we have heard much, especially at the General Election, about the need for change and modernisation. The Bill is a reminder that change can be good, but it can also be bad. This change in our taxation system will not be satisfactory and will not work in the long term. I doubt the accuracy of the Chancellor's forecast that we shall live to thank him. I agree with the right hon. Member for Leyton (Mr. Gordon Walker) that, if we had to have such a tax, it would have been far better to have had an added value tax.
My right hon. Friend the Leader of the Opposition spoke of a forced loan. Many small traders—farmers and others—will have great difficulty in raising this loan to make to the Government. Where is the money to come from? Will the banks be free to lend money to people who are now on the red line, people who cannot ask the bank manager for the money with which to make this interest-free loan to the Government?
Those who borrow money to make this loan will have to bear the very formidable interest charges which are no longer 3 per cent. or 4 per cent. I doubt very much whether anyone would be lucky enough to borrow money at double that rate today.
The need to take surplus labour out of both industry and services has been mentioned. It is claimed that one of the results of the Bill will be to attract labour into the manufacturing industries. But what sort of example have the Government set the nation to stop labour hoarding and wastage, when they themselves have, I understand, added 10,000 civil servants to the list in one year?
I turn now to the inequalities which will occur under the Bill. There is no need to stress the effect on part-time workers. It has been suggested from the benches opposite that there should be pro rata adjustments in the rate of tax for part-time workers, and I very much agree, because the effect of the Bill otherwise will be to put a great penalty on


part-time workers who, if the choice is left to the employer, must be laid off.
I have received letters from representatives of many different industries and trades, as others have, and I am particularly impressed by what is said by those which have a high labour factor. They will suffer enormously. Laundry and shoe repairing are two outstanding examples. These may seem infinitesimal items in the context of a Bill of this magnitude, but they are none the less of great importance. One thinks also of the cleaning services to which my right hon. Friend referred, not to mention building, sport and the arts. But such trades as laundering and shoe repairing, with something over 50 per cent. of turnover represented by the labour charge, will be very hard hit.
The Government argue that the Bill will not greatly raise the cost of living. They should look at some of the figures which the different trades and industries have produced. I cannot envisage anything less than about a 20 per cent. increase in the cost of services to the buyer. It must be at least 20 per cent. because of the high labour factor in businesses of this kind.
There have already been references to the inequalities in competition. I shall not elaborate on this now. My right hon. Friend spoke of the inequalities in the bakery trade, and the hon. Member for Brightside, of course, brought the point out with dramatic clarity. One has only to study his speech to appreciate what tremendous inequalities there will be.
I endorse what has been said about the effect on the private schools. Whether we agree with private education or not, and whatever our ideology on the subject, this nation at present does not, and cannot, send all its children to State schools. We have the present system, whether we like it or not. In due time, of course—who knows?—the party opposite, if in power long enough, may be able to change the situation, but at present we have the private school system as well as State education.
Whether we like it or not, there are many people who send their children to private schools—sometimes not through choice but because they have to send their children to boarding school—and they

are paying twice already for education. They are meeting their own school bills and they are also paying their full taxation to the nation. Now, however, they will have to meet a third tax. They will have to pay three times over for their children's education. While we have the present system, this is most unfair. I should like to have seen some form of tax rebate for those who save the country so much money by paying for private education. But, if that cannot be, at least we should not tax them three times over.
Now, the local authorities. There is a widespread opinion that the Bill will not affect the rates. This is a crazy notion. One has only to study the speeches made on the subject already to understand that the local authorities will be affected. To what extent we do not know. This is one of the troubles with the Bill. We do not know, and the Government themselves do not know, what the full effect will be. But, plainly, it will put a charge on local authorities. They are big buyers of services quite outside what they do with the labour they provide for themselves. To this extent, the rates will inevitably have to be increased. We have a Local Government Bill going through the House, the idea being to give relief of rates. Admittedly, it is a very small relief, but there is something. Yet we are now asked to approve a Bill the direct and, presumably, intended consequence of which must be to put a charge on the rates. These is no way out of that.
Let those charities, churches and other institutions which think for the moment, because of what has been said by the Government, that they are free from the charge realise that they most certainly are not. If they buy any of the services which bear the tax, and nearly all of them do, it will cost them extra money. For what purpose? At the end of the day, they will realise that part of the money is not for taxation but is for a subsidy to manufacturers of inessential goods. Gambling machines have been mentioned in this context. That is the purpose, to subsidise such things as that.
Quite rightly, this is called a Selective Employment Tax. But how selective is it? I hope that Ministers will examine those words in the light of the speeches which have been made. What kind of selection


is envisaged? As others have said, it would have been better to have a sales tax.
It has been said that Birmingham will benefit from the tax because we have so much manufacturing industry there and probably a large proportion of the people are employed in manufacturing. But I have yet to receive a single letter or suggestion from Birmingham that it favours this tax. Birmingham people know that it will add to the cost of living enormously.
Is it the Government's intention that the subsidy which is to go to manufacturers shall be paid out to meet extra wage claims to keep up with the cost of living and so satisfy the workers? Is it the idea that wages will be free to rise because there will be a subsidy to manufacturers so that they can pay up and satisfy the unions? One suspects that ideas of that sort may be in their minds.
We are supposed to have a Government who aim to have a full employment economy. In fact, they are going the right way, and fast, to reverse that principle. I am reminded of the man who said that he was glad he had married because his wife helped him tremendously to solve the difficulties which he would never have had if he had not married her. The Government are presenting a Bill to solve problems they would not have if they did not introduce it.

7.30 p.m.

Mr. Roy Hattersley: I am glad to have the opportunity to follow the hon. Member for Birmingham, Selly Oak (Mr. Gurden), particularly as he quoted the suggestion that the Bill would favour Birmingham and the West Midlands. I wish that he had been more explicit about who had said that. The latest authority to make the prediction was the right hon. Gentleman the Leader of the Opposition this afternoon. As I understood it, when the right hon. Gentleman spoke about the favourable treatment that the Birmingham area would receive from the Bill his comments were tinged with regret, to say the least.
I am sure that the constituents of the hon. Member for Selly Oak and the people of Birmingham in general will wish to know if he supports that point of

view. According to The Guardian index number, Birmingham's two largest firms will probably benefit more than any other industrial firms in the country and Birmingham and the West Midlands stand to gain more from the Bill than any other region.

Mr. Garden: My constituents are not a bit satisfied with the Government. I have not had a single communication in favour of this proposal but many against. They are afraid of the increase in the cost of living.

Mr. Hattersley: The hon. Gentleman must tell the House his record, over the last 10 or 15 years, in receiving letters congratulatory of Government policy. My understanding of the psychology of constituents—and I do not blame them—is that when they complain they write and when they seek to congratulate they do not write. It is also my experience that the sort of people who feel that they are being badly treated by this proposal and who have written to me—butchers, shoe repairers and hairdressers, for example—are the sort who, by nature and psychology, are particularly likely to write to their Member of Parliament.
According to The Guardian, Lucas's and B.M.C. are likely to benefit more than any other firms, but it is not to be expected that firms of that sort and size will immediately write to us to say how delighted they are by the Bill. Whether they are or not, I am, and I rise to support not only the Bill but the tax innovation of which it is an essential part—essential because the proposals for the repayment of the tax, contain a specific selective and, if the House prefers it, discriminatory element. I applaud entirely the decision to break with previous taxation policy and to begin to discriminate between one taxpayer and another. The Leader of the Opposition talked about the tax having broken every canon of good taxation from Adam Smith to Hugh Dalton. I agree that it breaks some canons but I hope that the right hon. Gentleman understands that that is not something that many hon. Members on this side of the House consider an unmitigated disaster. Many of us feel that some canons need to be broken and my support for the Bill and its principle arises from the belief that some of the


more unsatisfactory canons have been shattered.
When discussing the selective element, it is important to remember that it is only the second or third objective of the Bill. As my right hon. Friends the Chancellor of the Exchequer and the Minister of Labour have said, the first objective is to raise revenue, to decrease purchasing power, to mop up effective demand which, in present conditions, the country cannot afford.
That is why I was astounded when, at an earlier stage, the right hon. Member for Leeds, North-East (Sir K. Joseph) cried out that the tax would put up prices—just as if he had just discovered the fact which the Government had been keeping from the people. Of course, part of the effect of the tax will be to put up retail prices. It is absurd of hon. Members opposite to pretend that prices will go up and that that is a bad thing, just as it would be equally absurd if we said that prices will not go up and that that is a good thing. The truth is that some prices will go up and that is a good thing indeed and one of the purposes of the tax. Indeed, it is the principal virtue of such a tax.
We are facing an inflationary situation and it becomes our obligation to reduce purchasing power by one fiscal means or another. The means chosen by the Government has the overriding virtue of spreading the increase throughout the community without the general and unfortunate—and in some areas totally disastrous—effects of the Purchase Tax levied on specific commodities made by specific firms in specific areas. That must be and is the principal purpose of the tax and what we are discussing—the distributive or discriminatory elements—must be and is the second or third object.
I support this innovation in taxation policy. I congratulate my right hon. Friend the Chancellor of the Exchequer on devising it. The word "innovation" does not fill me with dread as it does so many hon. Members opposite. For the first time we have devised an economic weapon which does not solve our short-term difficulties while at the same time creating additional long-term problems. One of its virtues is that, while helping to

do something about inflation and the balance of payments, it is not at the same time so cutting back industrial activity so savagely that productive power is impaired for the next five or ten years. It is a remarkable achievement to reconcile short-term and long-term aims and is one of the chief grounds for congratulation to the Chancellor.
In his Budget statements the Chancellor said that the second aim was to promote long-term structural change in industry. The tax is an instrument for moving labour from where it should not be to where it should be. Of course, it is crude and arbitrary. I wonder whether the hon. Member for Selly Oak, shares the remarkably optimistic view of one of his colleagues who has talked about the tax distorting the natural employment pattern which has stood us in good stead for the last 20 years. If he does not share it but admits that the pattern needs to be changed or improved, what are his methods of improving it? How would the Opposition do their job and yet remain within the terms of G.A.T.T.? How would they do it without opening themselves to the charge of interfering unwarrantably in the affairs of specific firms and industries?
I make no apology for saying that, if I had my way, I might well choose a tax which was levied on and repaid to firms only after individual scrutiny had been made of their export and production potential and labour usage by a Ministry. But if such a system came into operation hon. Members opposite would be the first to complain. We would hear all the hackneyed phrases about the "man in Whitehall knowing best" and about an intolerable apparatus of controls and snoopers.
When that part of the Bill is implemented in which the Ministry of Technology decides what are genuine research establishments and what are not, even setting aside the psychotic attitude of some hon. Members opposite towards the Minister himself, I am certain that there will be enormous complaints about the Ministry discriminating in favour of the wrong firms. The main objection to any sort of more precise form of interference or assistance would come from hon. Members opposite, none of whom have made any real attempt to offer an alternative system of taxation which


would even attempt to do what this tax does. I believe that the hon. Member for Blackpool, South (Mr. Blaker) wishes to interrupt.

Mr. Peter Blaker: Mr. Peter Blaker (Blackpool, South) indicated dissent.

Mr. Hattersley: I know that the hon. Member started to rise before I talked about what this provision would do. I did not realise that the hon. Gentleman was simply anxious to say that hon. Members opposite had invented other new taxes but not this one. I concede his point willingly. The only point I am making is that this particular piece of ingenuity, this particular innovation, seems to have escaped them.
Having said that in many ways this is a crude and arbitrary instrument, I go along entirely with the decision which implies that if it has to be, as it has, as crude and as arbitrary as this, the division between services and manufacturing is probably as good a division as can possibly be brought about. In the House today, there has been repeated the old, well-worn and in my view entirely fallacious doctrine that it is the mark of an advanced society that it spends a lot of its time, energy and wealth on service trades. In my view, it is the mark of an advanced society that the service trades are very expensive.
It is not to our credit that our shoe mending and our milk distribution and laundering are among the cheapest in the world. It may be to the credit of those industries, but not to the credit of Great Britain as an industrial society. They are very much more expensive in the United States of America, Sweden and Germany because in those countries much more effort and much more determination and much more concentration go into actual production, and the service industries get what energy and enthusiasm is left over rather than have a primary place in the economy as they have in Great Britain.

Mr. Heath: Extraordinary statement!

Mr. Hattersley: A perfectly sensible statement. I am not sure whether the right hon. Gentleman was saying "extraordinary statement" out loud, or privately, but if he wants to say it out loud, I will give way to him.

Mr. Heath: I will repeat it out loud. It is an extraordinary statement if he is

saying that in the Swedish system the services are expensive because they are what is left over from the production system.

Mr. Hattersley: I am saying that in their advanced industrial societies the cost of services such as laundering, hairdressing, shoe repairing and the distributive trades is relatively far more expensive than in Great Britain and that it is so much more expensive because the labour which is available for the purpose is in much more short supply than it is in Great Britain and I am saying that in properly organised industrial societies——

Mr. Blaker: Will the hon. Gentleman give way this time? He is saying that labour is in much more short supply in the United States. That is complete nonsense. The percentage of unemployment in the United States is three times as high as it is here.

Mr. Hattersley: The hon. Gentleman is now doing what he began to do before—taking the point when it is half made.

Mr. Blaker: It is not even half made.

Mr. Hattersley: What I am saying and what I repeat is that in the industrial areas of the United States services are so expensive because labour is so expensive, and labour is so expensive because of an emphasis on production which does not exist in Great Britain. I am saying that it would be an entirely healthy thing for the British economy to have a demand for more and more labour resources from the services into manufacturing.
The other extraordinary chestnut which has been drawn across the House this afternoon is the pretence that a strange dichotomy——

Mr. Bruce-Gardyne: Is the hon. Gentleman suggesting that labour in manufacturing industry can be made more expensive by persuading labour to move from the service industries into manufacturing industry, thereby increasing recruitment of labour into manufacturing industry?

Mr. Hattersley: I am not only not suggesting that, but I give the hon. Gentleman credit for knowing that I am not suggesting that.
What I am now saying is that some hon. and right hon. Members have tried


to draw a totally false distinction between industries with a high capital content and industries which are in great need of labour. There has been a sort of implication that those industries which are most capitalised and which have most productive capacity in terms of plant and machinery are not those which are in desperate need of labour, because of their ability to innovate and because of their willingness to put down new plant so that they can somehow solve their own labour problem.
This may be true of some parts of the country, but it is certainly not true of the West Midlands. It is not true of those automated in part and mechanised in total, great manufacturing industries which are crying out for labour every day. Certainly it is not true that a man will not give up his job in one service or another to move into productive engineering because he is not sufficiently skilled. The great production lines of motor manufacture and other mechanical industries in the Midlands are particularly suited to the man without a specific skill and without apprentice training who can easily move from unskilled service industries into more valuable and more productive engineering organisations.
I am therefore saying that though this tax is arbitrary and crude in many ways—and I have already repeated that twice and will no doubt repeat it again—this is the best division which it is possible to devise, because for once we have abandone the old obsession that ensuring equity was above all other things the requirement of taxation policy. Other countries have accepted that on occasion there has to be a little less equity and a little more efficiency. Sometimes two firms in terms of fairness—a word repeatedly used by the hon. Member for Selly Oak—equally qualify for Government assistance, or at least absence of Government penalisation. But they are not equal in terms of assistance to the economy in promoting exports and in terms of making us a more prosperous society.
In conclusion, I say with what delight I saw that that particular canon of taxation, from Adam Smith to Hugh Dalton, which implied that there had to be this great and crude concept of equity, of spreading taxation evenly over

individuals and firms, whether the industrial commerial and economic merits were identical, has gone, I hope for ever.

Mr. Heath: Is the right hon. Gentleman proclaiming that it is his doctrine that the prosperous society of Birmingham ought to be helped, but that the Highlands, which depend on services for their very existence, ought to be damaged? Is he saying that that is the new canon of taxation?

Mr. Hattersley: I am advocating the doctrine that the country cannot be divided in this arbitrary and artificial way. I am convinced that if Birmingham is able to export more and become more prosperous, not only Birmingham but the Highlands will benefit. If the right hon. Gentleman is somehow dividing the country into those totally artificial categories and implying that there must be equity of investment, production and prosperity throughout, he is advancing an artificial concept of what Great Britain stands to be.

7.48 p.m.

Dr. M. P. Winstanley: I have listened with great interest, but no surprise, to the criticisms which have been heaped on the Bill from both sides of the House, and not least from the Minister of Labour himself. I am bound to say that my right hon. Friend, my hon. Friends and I agree with the vast majority of those criticisms. They have been heard many times. They were made on the Finance Bill and they will no doubt be made again, but they have become no less compelling on the fourth, fifth, or even sixth hearing. I am glad that they have been repeated to such an extent, because by now they must be indelibly imprinted on the minds of Ministers.
I will endeavour to avoid the tedious repetition which the Standing Order so rightly prohibits, but it will be necessary for me to go over some of the points again merely to reveal my party's attitude to them. As far as I can, I will deal with new issues or special points which the Liberal Party would like to make. To explain our general attitude to the Bill and to the tax which it is designed to serve, we can do no


better than subscribe to the description of the Bill by the right hon. Member for Leeds, West (Mr. C. Pannell) as
bereft of reasons … as about insensitive as it is daft."—[OFFICIAL REPORT, 19th May, 1966; Vol. 728. c. 1624.1
I am bound to say that as a Lancastrian I am perfectly willing to regard a Yorkshireman as an authority on what is and what is not daft.
The tax, according to the White Paper has two main objectives. First, according to the White Paper, it is designed to improve the structure of the taxation system and, secondly, it is designed to encourage the economy in the use of labour. It is obviously implicit that it has a third objective, which is to raise revenue.
If I may, I will take the third of these, the implicit objective of raising revenue, and say that we in the Liberal Party fully accept the need to raise this money, whether it be the £315 million which is to be raised in the first year, or the £240 million which the tax will ultimately realise in an average year. We concede at once, and it has now been conceded by hon. and right hon. Gentlemen in the Tory Party, that there is a need to raise this money.
What we do not accept is the way in which it is intended to raise the money. We entirely agree with the Chancellor when he said in his Budget speech that he felt that direct taxation had, in many ways, reached saturation point. Our hopes rose when we listened to him elaborating this argument and say that he did not intend to increase direct taxation. Our hopes very soon sunk again when we heard the details of the tax which the Chancellor had devised.
It is a tax which raises £240 million in an average year, but it is a tax which seems, in terms of actual contributions per head of population, to raise very much more from the individuals in the poorer areas of the country than it raises from those in the richer areas of the country. In other words, it takes from the areas without industry more per head of population than it takes from those areas with industry, per head of population. If we compare Scotland with the area of Yorkshire and Humberside, Scotland will provide net, as a result of this new tax, £35 million. Yorkshire and

Humberside, an area which, in terms of its economy and industry, has greater prosperity, will provide £29 million; in other words, £6 million less. We cannot accept that it is logical to devise a new tax which clearly takes more by way of contribution from areas which have less, and takes less from areas which have more.
Next, we must say that here is a tax which fails to take cognisance of the relative importance of the different people upon whom the tax is levied. This point was made very fully in the debate on the Finance Bill by my hon. Friend the Member for Colne Valley (Mr. Richard Wainwright), when he explained that the tax will take exactly the same amount of money from the bank doorkeeper as it will take from the high-powered economist at the bank. If there is an incentive to get rid of anyone it will be the doorkeeper who will be got rid of, which would not make any major contribution to manufacturing industries. It would not be the economists who would be got rid of, although that might make a major contribution.

Mr. R. B. Cant: May I ask the hon. Gentleman whether he really thinks that it would make a better contribution to efficiency to get rid of the professionals, the economists, rather than the doorkeeper?

Dr. Winstanley: It depends upon what the professionals are doing. If one wants to transfer resources from service industries, so-called, to manufacturing industries, it is clearly important to move the people who likely make the greatest contribution to manufacturing—that is if one accepts the concept behind this Bill.
This is a tax which discriminates against part-time workers at a time when we are desperately short of labour and when we need everyone we can get, whether part-time or full-time. It discourages people of pensionable age from continuing to work once they have reached that age, again at a time of desperate labour shortage. It places obstacles in the way of the employment of disabled persons. It also makes it difficult for the married woman, particularly the professional woman, to return to occupations such as teaching, nursing and medicine, and so on, at a time when we so much want them to return to work.
In our view, it will inevitably result in firms focusing their energy and resources on all sorts of internal rearrangements, not designed to improve their industrial efficiency, but merely designed to rearrange themselves so as to attract the minimum tax. This cannot be the sort of thing which the Treasury wants to see industry doing. One does not want to see our industry, at a time when it is desperately important that it should be concentrating on the job in hand, deliberately dropping important things and turning to its internal administrative arrangements, deciding how best matters can be arranged so as to protect a firm and make it liable for the minimum amount of tax. This is exactly what will happen. This must happen and we cannot escape the conclusion that it will damage the economy rather than help it.
We have already heard about the troubles and the difficulties which will arise from this tax because of certain of its definitions, and the way in which it is to be applied. We know that it is very much related to employees employed in the same establishment. "Establishment" is a word dear to the Ministry of Labour, which has been made responsible under the Bill for the tax. The Ministry of Labour is used to dealing with establishments, not with firms, or corporations or enterprises, but with establishments in terms of geographical areas, and areas of operation. This is the way in which the Ministry operates, but the difficulties which will arise from this kind of concept being applied in relation to the tax are legion.
Examples have been given and I will give one from a firm in my own constituency, a very well known toy manufacturing firm which has within it a retail business selling toys. It has also, very wisely, a very large restaurant, since it is situated out of the main stream of the city, so that women and their children can go along to the restaurant and buy at the retail shop. There is no doubt that this firm will escape this tax, and that it is proper that it should. It will escape the tax because numerically the majority of its employees are engaged in manufacturing rather than serving.
If it had happened that the retail section and the restaurant were across the

road—and there happens to be a road, and the firm has land across that road—then, suddenly, the firm would be in the difficulty that part of the premises attracted the tax, while another part did not. Immediately, the firm would have to decide how to shuffle people about, taking some people from "there, putting others here, and others from here to there, so that its tax system in relation to the Selective Employment Tax was changed.
This is not the sort of activity that we want people to be embarking upon in our industries, but it is undoubtedly the sort of activity which they will set about, as a result of the need to rearrange their affairs. It is bound to create disturbance and difficulties. It seems quite astonishing that at this stage, when searching for a new tax, the Chancellor should come forward with a tax by which he achieves an additional income of £240 million a year, once it has got off the ground, and we have got through the first year, by collecting £1,240 million a year and then giving £1,000 million a year back again. Even the bank charges involved in an operation of this kind, quite apart from the costs of the administrative staff, are bound to be very considerable. I have heard varying estimates. I am sure that the Chief Secretary has heard varying estimates. I am sure, too, that his estimates are causing him considerable concern.
Having devised this curious new tax, what does the Chancellor do with it? He hands to the Ministry of Labour, which never in its history has been called upon to act as a taxing agency. It is not staffed or equipped to act as a taxing agency. Throughout the years it has built up a relationship with industry based on a totally different rôle. Its attitude towards industry and its contacts with industry are not the same sort of contacts as a taxing Ministry would have. It will immediately find itself in difficulties additional to those which it will have because of its lack of resources to carry out these new tasks.
The second objective of the tax is to encourage economy in the use of labour. We entirely accept the need for this. But we have grave doubts whether discrimination in terms of the use of labour in service industries as against manufacturing industries is right. We agree that in this


country there is great waste of labour here and there. We agree that certain people are in full employment and are under-employed. We are prepared to say even that if every person in this country who was fully employed in the sense that he had a job was employed effectively our balance of payment problems would be at an end.
But is there such a difference between service industries and manufacturing industries? My hon. Friends and I are inclined to say that if there is a marginal difference, it is the service industries which take the lead. If hon. Members have any doubt about that, I suggest that they spend three weeks in the catering industry. They will be glad to creep off into the steel industry for a rest.
Many examples occur to hon. Members, but the common example which is quoted very often is steel. Published figures show that it takes two and a half men in this country to produce a ton of steel in the time that it takes one man in the United States. It is not just the labour. It is capital and capitalisation and organisation. Many hon. Members will have seen the article in the Sunday Times in which our relative figures were quoted at some length and which showed that our manufacturing industries are far from making effective use of their labour.
An excellent example is the newspaper business, which is being treated as a manufacturing industry. It wondered whether it could believe its luck, but the Chief Secretary made it perfectly clear, in answer to a Question, that it will be treated as a manufacturing industry. Let us consider the situation in the newspaper business, which was illustrated quite clearly by the Royal Commission on the Press in 1962 and by the Report of the Prices and Incomes Board on the Newspaper industry in 1965. This is an industry which is not making economic use of labour. It has been suggested that it is under-using its labour by about 40 per cent.
There is in the newspaper business something virtually bordering on a conspiracy—not an arranged conspiracy but perhaps an implied conspiracy—between ownership and labour whereby too many people are employed, it is an arrangement with which the big newspapers are satis-

fied and the small newspapers gradually get swallowed up one after another. What is the remedy of the Chancellor of the Exchequer for this situation? It is to make an enormous hand-out to newspapers and say, "This is to encourage you to do better in future".
Our doubt and worry is that if the Chancellor of the Exchequer has this money to give to industry—and he is giving it money—can he not make better use of it than to give it in such a way as to encourage people not to make fuller use of their labour force, but to retain too many people? There are many ways in which we could do this. Our economic future depends, as the Chief Secretary well knows, not only on the economic use of labour, but on the economic use of machines. In future, it will surely be machines which do the overtime and not men. Would it not have been better to use all this money, if the Chancellor has it to dispose of, to increase investment allowances or investment grants and to encourage manufacturing industry to put its house in order? Whether it would be or not is a matter of opinion, but that is most certainly the Liberal Party's view.
We believe that an opportunity has been thrown away. We do not think that the tax will achieve its objective either in terms of the redeployment of labour or in creating a more sensible tax structure as outlined in the White Paper. There may be a marginal difference, but I do not believe—and the speeches which we have heard show that other hon. Members do not believe—that the salvation of the aircraft industry in this country lies in a massive influx of displaced hairdressers.

Mr. J. J. Mendelson: Why must the hon. Gentleman, in this very serious speech, sink to the "pub" level of making feeble jokes? The Chancellor of the Exchequer, when he introduced the Selective Employment Tax, made it clear that he did not expect a dramatic change from one type of employment to another. He thought that, on balance, in the longer run, it would encourage people not to add new labour to the service industries but that some of the new employment would go into manufacturing industries. Why does not the hon. Gentleman address himself to a serious case instead of talking nonsense?

Dr. Winstanley: It is an immensely expensive way of achieving what the Minister has described as a very small change. There are people who have argued that we must get people out of service industries and into manufacturing. I am merely saying that they will not go. They do not want to go. There is no reason why they should go and even if they do go, they will not make the major contribution which we need.
We have heard about anomalies in terms of establishments—whether the road runs through them or outside them. We have heard of the anomaly concerning confectioners and bakers. We have heard about the extraordinary anomaly in the wastepaper and shoddy cloth business—the people who collect together and supply the wastepaper which constitutes the only indigenous raw material in our paper manufacturing business who are in a most extraordinary position. This trade comes under the heading of XX.832/26, which is a service. But for rating the same trade has been specially treated as manufacturing and derated accordingly.
I mention that not for its own sake but merely as one example of the many anomalies which the Chief Secretary knows will occur. Anomalies are cropping up in this, that and the other place. We have heard about many of them today. We shall hear more as the evening wears on. All these anomalies will have to be looked into. Resources will have to be used to look into them. They will cause trouble and will dislocate the wheels of industry and of the administrative set-up which the Government needs so urgently for other purposes.
There is the anomaly of the situation as between the public sector of industry and the private sector. I am not necessarily in favour of giving assistance to the private sector of industry or of discouraging the public sector. I am anxious to give the public sector every possible help. But there is a problem when the public sector of industry is in direct competition with the private sector, as it is in direct building schemes, and as it is even in certain minor matters like nursery schools, where the privately owned nursery school is on a totally different tax basis. Those are things into which the Chancellor will have to look at over and over again.
At a very early stage, when talking to The Guardian, the Prime Minister referred to the tax as
crude and clumsy in its implications",
but he added that it could be refined later. It takes a long time to do the refining, and it has taken a long time to do that which has already been done in terms of agriculture and charities. It will go on and on because the tax was a mess and a muddle from the start.
Speaking for the Liberal Party, one has a duty to put forward alternative proposals. The Minister of Labour invited hon. Members to put alternative proposals if they criticised the tax, and I hasten to accept his invitation.
I am delighted to know how many right hon. and hon. Gentlemen in various parts of the House appear to believe, as we do, that a much more sensible measure to have introduced would have been a percentage payroll tax. That would achieve the Chancellor's aims. First, it is a flexible instrument which can be varied for areas of under-employment or for areas of over-employment. It can be varied to assist export industries, in spite of the provisions of G.A.T.T. and so on. It can be varied to discourage industries which are non-contributory from the point of view of the country's economic position.
It is a tax which could easily be remitted for charities, part-time workers, the disabled, employees working overseas, apprentices and other people undergoing training, and for all the difficult situations which have been referred to frequently by hon. Gentlemen during the debate. It could be done. If it was done, we would have a continuing flexible instrument available for the use of the Government in furthering their economic aims.
In the end, we in the Liberal Party would like to see such a tax replace totally the present stamp and all the National Insurance benefits; but that is another matter. For the moment, we believe that there are many possibilities even in introducing such a tax on a limited basis.
A payroll tax could be introduced immediately in the following terms to raise the £240 million per year which the Chief Secretary is so anxious to acquire.


First, the West Midlands and the South-East would pay 7s. per employee per week. Secondly, Yorkshire, Humberside, the North-West, the East Midlands and East Anglia would pay 3s. per employee per week. Thirdly, the Northern Region, in terms of the Department of Economic Affairs, the South-West, all Scotland and all Wales would pay no tax.
The rates would be 7s., 3s. and no shillings, and it would realise precisely the £240 million which the Chancellor is so anxious to get with none of the troubles, arguments and special inquiries about who is to count because of these arrangements in industry, who does and who does not count, will it apply this side or the other side of the road, and so on. It would work immediately.
If the Chancellor were to announce such a tax, what a relief it would be to the British people, British industry, the vast army of people who have to collect or are otherwise concerned with our taxes and, most of all, a profound relief to the Chancellor's right hon. Friend the Minister of Labour.

8.15 p.m.

Mr. Geoffrey Rhodes: I hope that the hon. Member for Cheadle (Dr. Winstanley) will forgive me if I do not comment on his interesting speech in detail, except to say that in view of what he said about Yorkshire, he will be pleased to be followed by one who comes from that part of the world.
On his last point about regional economic planning, I was in sympathy with what he had to say, and I would hope that his tax, with its distinctions, might be used for some form of economic planning in the future. Those of us who attended the Press Gallery luncheon shortly after the Budget was announced heard the Prime Minister make some reference to the tax.
I want to refer first to the speech of my hon. Friend the Member for Birmingham, Sparkbrook (Mr. Hattersley), who I regret to see is not in his place at the moment. I agree with what he said about the tax in principle. There are formidable arguments for taxing employment. It is an important method of economic planning and control. I would also accept the argument for taxing services, because it is true that taxes

inevitably tend to follow the consumer, and there is an increasing proportion of consumer expenditure being made on services.
I support measures of this kind if, as I accept is the reality today, we have as an alternative the traditional increases in taxes on commodities and incomes. In principle, I would go a long way with the Government in relation to the tax, but I would go the whole way and agree with my hon. Friend as to the theory behind it. However, where he is wrong and where the Government are wrong is simply that the selection made is vital if the objectives of the Selective Employment Tax are to be carried out.
Under the Bill, the criteria which will determine whether an employer pays the tax without refund, is repaid in full or receives a premium in addition depend not on the economic or social merits of the service being performed but on the place which it happens to occupy in the Standard Industrial Classification.
My hon. Friend makes a distinction between manufacturing, distribution and services, which is a difficult distinction to make in some cases. But even the Standard Industrial Classification formula does not make the distinction in many instances that I intend to outline. The Standard Industrial Classification is not an economic or social priority yardstick. The purpose of that classification is as a means of comparability and the tabulation of official statistics in the United Kingdom.
My hon. Friend the Member for Bilston (Mr. Robert Edwards) put a Question to the Parliamentary Secretary to the Ministry of Labour on that very point on 13th June. She replied:
This classification does not attempt to distinguish between industrial groups on the basis of their importance to the national economy."—[OFFICIAL REPORT, 13th June, 1966; Vol. 729, c. 220–1.]
If it does not make that distinction and we use it as the major instrument of classification under the Bill, it cannot carry out effectively the economic and social purposes behind the Selective Employment Tax, because it is not related in its classification to economic priorities.
Under the Bill, assuming that subsidies are to be paid to employers engaged in activities falling within Orders Nos. 3


to 16 of the Standard Industrial Classification, in food production, for example, some very odd anomalies arise. A small example which is typical is the production, pasteurisation and bottling of milk. When it leaves a farm, milk is not a finished commodity ready for distribution. It is not in a fit state to be sold to the public, and it would be illegal to do so in that form.
Milk does not come within Order No. 3, however. It has to be pasteurised and bottled before distribution, but in the nature of this index milk is placed under Order No. 20 in the distributive trades. In answer to a Question on 13th June the Parliamentary Secretary to the Ministry of Labour said that the Government regarded the pasteurisation of milk as part of the distributive process. Why? What logic is there about this? Milk is not ready for distribution until this part of the manufacturing process has been completed. It is therefore wrong—and there are many examples of this kind, which I would elaborate if time were not running out—to require employers to pay tax on workers in this industry.
The reason why no one has bothered to dispute the inclusion of milk processing in the distributive section of the Standard Industrial Classification is that in the past it was a statistical exercise which had significance at all, certainly not in financial terms. It has assumed significance only because of the introduction of the Selective Employment Tax, and unless there is a change of policy in regard to the classification under this Bill we will have the farcical situation under which people engaged in what I call the manufacturing process of milk, the pasteurisation and bottling process of a basic commodity, will haxe a tax placed on their labour, while manufacturers of pet foods will qualify for a subsidy because they come under some other Order of the S.I.C. It is indeed an odd system of priorities which puts a tax on food consumed by humans, and at the same time subsidises food consumed by animals. This is the kind of anomaly which is bad for the image of any new form of taxation.
My hon. Friend the Member for Spark-brook also mentioned footwear. The

manufacture of footwear is within Order No. 12 of the S.I.C. and it will qualify for a subsidy. But footwear wears out. In general the poorer sections of the community cannot afford frequent purchases of brand new shoes, and therefore have to resort to having their footwear repaired. Footwear repairs come under Order No. 23, miscellaneous services, under which employers must pay the tax without refund. This will, inevitably, lead to an increase in the cost of repairs, which are already high enough, and it will be mainly the poorer families who will have to meet the brunt of it. This is the kind of anomaly, and the complete lack of any social priority, or even economic priority, which will arise under the Bill.
The position with regard to transport is very interesting. The tax will be refunded, but without premium, to transport. There is, however, a special exclusion from the refund of one category within Order No. 19, namely, miscellaneous transport services and storage. This means that employers who operate their own transport will be treated according to the definition of the relevant establishment.
This means that drivers employed at factories, at manufacturing establishments, will be covered by the premium and will be subsidised, but those employed at depôts or warehouses, in the essentially distributive parts of the industry, will pay the tax, and yet they will be doing the same kind of work, the transporting of goods.
Some organisations are trying to rationalise their transport services. They are trying to improve their efficiency as distributors by developing centralised warehousing systems, and centralised transport systems. The Co-operative movement and the Co-operative Wholesale Society are notable in this respect. This is the way in which the Co-operative movement is trying to make itself more efficient. The Bill will severely handicap this process, because the more efficient, the more centralised, and the more concentrated the distribution points are, and the more the warehouses and transport depôts are centralised, the more will they become subject to tax, whereas if the transport services and the warehouses are pushed back to the factories in a number


of inefficient units, they will not be subject to the tax, because in relation to these services they will be attached to a manufacturing unit. The Co-operative movement will be penalised because in the interests of the national economy it is taking steps to make itself more efficient. How does this square with the economic policy announced in the Budget?
There is also the anomaly that publicly-owned coal depôts which distribute coal will not get the benefit of a rebate or a premium where they are in competition in their distributive outlets with cooperative and private enterprises, but the gas and electricity boards, which compete with co-operative and private distributors of domestic appliances, will be subsidised in their competition with these other enterprises. These two nationalised concerns have already been criticised for their extravagant advertising and wasteful competition, and here again there is an inconsistency between the way this Measure works out, and the worthy objects behind it.
The unit which is to be used under this tax is not a firm or a company, but is based on an establishment, and the premises or parts of premises occupied for the purpose of the business of one occupier are treated as a single establishment only if there is access to all parts of the area comprised in those premises. Presumably if two parts of a plant are separated by a road they will be treated as two establishments, but if they are connected by a bridge or a tunnel they may constitute one establishment.
This definition will have great financial significance, because the Bill lays down that if more than half the persons employed in an establishment are engaged in activities which qualify for refund of premium they will all qualify, but if more that half are employed in non-qualifying activities, such as clerical work, or transport, or selling, none of them will receive any refund at all. In these circumstances, a shrewd employer, well-advised, will begin shifting staff from building to building to avoid the incidence of this tax, not because to do so is economically efficient for the firm, but because of the anomalies which the method of operation of the tax will bring about.
My right hon. Friend the Minister of Labour referred to the establishment being based on the postal address. I hope that this issue will be clarified when the Minister replies, because if, as one hon. Gentleman opposite said, firms are classi-field on the basis of postal addresses, all that I have been saying for the last two minutes does not make any sense. It is not valid, and if that is what it means, the Bill does not make sense either.
A productive process may either qualify for the premium or pay the tax without refund, according to the establishment at which it is carried on. This brings me back to my hon. Friend the Member for Sparkbrook, who mentioned this general broad classification into services and manufacturing. The Bill does not solve this problem, certainly not in its entirety, because a bread and flour factory attracts the premium and is subsidised, but production at bakehouses attached to bakers' shops is excluded, so that the particular activity is right, from the tax point of view, in one situation but wrong in another, where it happens to be taxed as being at a distributive outlet.
Similarly, the curing of bacon and ham, and the making of sausages and meat pies, attracts a subsidy, but not if the production is carried out at a distributive establishment. The making of condensed milk, and dried milk attracts the premium, but not the pasteurisation of milk. What kind of economic logic is there in that kind of classification?
I believe that I am correct in saying that large companies which are now beginning to centralise their computer services will have the problem that the establishments housing the new services—services that would make them more efficient—will become subject to the tax. With this new form of taxation, companies will be inclined to continue with inefficient methods of calculating on the factory sites. What is the point of making one's computation more efficient in one centre if it then becomes subject to a tax, when one could leave it where it has been for a century or more as a relatively small part of an establishment of a manufacturing unit?
If any hon. Member says that although these are interesting points they are Committee points, my reply is that the Bill


is riddled with this type of point. It requires very little imagination to foresee the disputes that will arise under the legislation, to say nothing of the redeployment of labour—not carried out by any economic yardstick, but because employers will be obliged to consider how to place themselves in the most favourable position in relation to the tax.
Has there ever been in the history of British taxation a system under which a citizen is liable to be taxed in his work if he is on one side of an arbitrary line and is even entitled to a subsidy if he is on the other side of the line, in respect of the same kind of work? This is quite unique. If we make this distinction of principle between services and manufacturing, we must make sure that we devise a tax that gets down to the job and that we are not left with a Bill that is riddled with inconsistencies. Vast sums of public money are involved in the premium and refunds—some £859 million.
For the sake of elementary justice and economic efficiency—and for the sake of carrying out the objects which were set out in the White Paper behind the Bill and the Budget—an attempt must be made—and quickly—to remove some of the glaring anomalies. My right hon. Friend the Minister of Labour said in his opening remarks that it is very easy to quote a number of extreme examples, but examples of the kind that I have been quoting are typical. If it were not 8.30 p.m., I should continue on the same theme with a much bigger list of similar cases.
The Bill has been described as a very rough and ready Measure. It is true that there has not been sufficient time for a really refined Measure to be presented, but we have to face the fact, and be blunt and forthright about it, that our economy and fiscal system will suffer if we have for very long to use a carving knife for a delicate surgical operation. We are asked to use the Standard Industrial Classification as a major instrument for classifying industry when that Classification was devised for a completely different purpose. This is why we have the anomalies.
It is inevitable, if we are to get the Selective Employment Tax off the ground—and I do not object to the principle behind it—that we must have the Second

Reading of the Bill tonight and see it passed, but I hope that the Bill will be amended before very long. We are told that, as it evolves and time passes, there may be changes to remove some of the injustices and anomalies. But an injustice is still an injustice even if it exists for months rather than years.
Before I sit down, I declare an interest. It is well known that those 18 hon. Members on this side of the House who are members of the Co-operative Parliamentary group have expressed the strongest reservations about the effects of the Bill on their own co-operative societies. I have been trying to point out this evening that on the basis of our business experience in distribution we have discovered anomalies that run right through the Bill and affect every sector of the distributive services and manufacturing trades.
An hon. Friend of mine—not an hon. Member opposite—said the other evening, "It is all right for you chaps, who have a vested interest". I would remind the House that a vested interest of 13 million ordinary working men and women in a non-profit-making organisation designed to develop many social ends should be given sympathetic consideration by the Government. Their trading and business experience should be heeded by the Government before the Bill proceeds much further.

8.35 p.m.

Mr. Peter Blaker: In opening the debate the Minister of Labour accused the critics of the Bill of having paid so much attention to detail that they were losing sight of the broad lines. It is interesting to note the way in which the debate has disproved that accusation. The speech of the hon. Member for Newcastle-upon-Tyne, East (Mr. Rhodes) is a confirmation of that. His criticisms went to the root of the matter. The Bill is wrong in its broad lines, and is wrong in the broadest possible way. It is wrong in making a discrimination between manufacturing and service industries. So long as we try to make that sort of discrimination in a Bill of this kind we are bound to get anomalies of the kind to which the hon. Member referred.
Not only shall we produce anomalies, but this discrimination, apart from being


unfair, will in the long run—and perhaps in the short run, too—do serious damage to the economy. Assuming that we need to raise the sums of money to which the Chancellor has referred—and I do not believe it would have been necessary to raise them if we had had a Conservative Government—it is right that the use of a Selective Employment Tax should be considered. But that tax should be applied across all forms of business and industrial activity, without discrimination. I would be prepared to consider regional discrimination of the kind referred to by the hon. Member for Cheadle (Dr. Win-stanley), and it would be right to exempt charities, but as between various classes of manufacturing or commercial business the tax should be applied without discrimination.
The discrimination which the Government are proposing to use is wrong for a fundamental reason. The service industries should be expanding. They are expanding in modern economies. One of the Government's arguments is that in the past five years 80 per cent. of the increase in the available labour force has gone into the service industries and only 10 per cent. into manufacturing. It is interesting to study the experience of the United States. Although the hon. Member for Birmingham, Sparkbrook, (Mr. Hattersley)—who, unfortunately, is not now in the Chamber—referred to this, I thought that his remarks were totally incomprehensible.
I want to quote from a letter in The Times of 21st June, written by Professor Jewkes, Professor of Economic Organisation at Oxford. I do not know the professor or what his political views are. I want to quote the facts that he cites and if the Government dispute them perhaps the Chancellor will say so when he winds up. The Professor says:
The figures show that, between 1950 and 1963 in the United States, the number of 'production' workers"—
corresponding broadly to the manufacturing categories in this country—
remained constant at 12,500,000. The number of 'non-production' workers increased by 64 per cent…. Perhaps even more significant, the proportions of 'non-production' workers were higher in 1963 and rose more rapidly between 1950 and 1963 in machinery, electrical equipment. transportation equipment and chemicals than in manufacturing generally.

If we are to discriminate between the manufacturing and service industries—I say that we should not—there is a strong case for applying the dicrimination in the opposite way and discriminating against manufacturing and in favour of the services. Manufacturing processes can be mechanised, but one cannot mechanise a waiter.
This brings me to one of the major industries which will be adversely affected—the holiday industry. It has already been harmed by recent Government measures: first, the limit of £100,000 on new building; and secondly, the abolition of investment allowances. I know already of cases in the holiday business of building projects having been abandoned or at least re-examined with a very critical eye because of these two changes. Now the Government come along with this third and most savage blow of all at the holiday business.
What they appear to have forgotten is that everything spent by an overseas visitor to this country is a British export and everything spent by a British visitor overseas is a British import. I read the other day a report of a speech by the Chairman of the N.E.D.C, Mr. Cather-wood, which makes it quite clear that he has not understood this point. If he has not understood it, as one of the Government's principal advisers, perhaps it is not surprising that the Government have not understood it, either.
In justifying discrimination of the kind which the Government propose, he said:
You can export a manufactured article, but you cannot export a haircut.
We can export a haircut; we exported 1½ million dollars' worth of haircuts last year and with no raw material cost in them at all. I hope that the Government will take this point.
There was a time when I thought that the Chancellor understood this point, because at the International Boat Show, early this year, he called for British people to spend their holidays in this country—rightly—and the holiday industry raised a small but hopeful cheer. However, in a week he had brought in his proposals for the abolition of investment allowances for the British holiday industry.
The earnings from foreign visitors made by the holiday industry are well known. Last year, £320 million-worth of foreign


currency was earned. The industry is the fourth largest earner of foreign currency and its earnings are rising at the rate of 13 per cent. a year. But there is the other side of the picture, the question of saving in foreign currency, which is equally important. There, the picture already, before the latest proposals of the Government is depressing. I speak from the point of view of the national economy.
The number of British people going overseas for their holidays has been rising faster than the earnings which we have been making from overseas visitors to Britain. In fact, the number of British people going overseas for their holidays has doubled in the last five years.
The Government's policies will encourage British people to go abroad and discourage overseas visitors from coming to this country. The British holiday industry is able to compete, both in bringing people here and in encouraging our people to stay here, by a few important factors. We cannot rely on climate, so we must rely on price and quality. The main thing is price. Already one can take a package coach tour to the Rhineland for about the same price as a package coach tour from the South of England to the Lake District. If we get much more expensive the consequences will be serious because this is a very price-sensitive business.
If the Chief Secretary wants confirmation of this he need only look at the figures for France, which used to be one of the most popular holiday countries in the world. France's net earnings—that is, after setting off expenditure by French people holidaymaking abroad—in 1956 were 186 million dollars. Only two years ago they were 23 million dollars. Instead of going up, as they should have done, they have plunged and soon the French will be spending more on going abroad than they will be getting from foreigners going to France. There was a time, a few years ago, when people began to say that holidays in France were too expensive. The French have priced themselves out of the market.
We in this country must provide proper facilities for our own holidaymakers and visitors from abroad. It is an indisputable fact that the facilities and resources of our holiday industry are out of date and need modernising. If the num-

ber of foreigners coming to this country continues to increase—which I fear it will not do because of the new policies—at the same rate as it has in the last few years, there will, by 1970, be a shortage of 30,000 beds in our hotels; and there are already instances of Americans not coming here because there is not sufficient hotel accommodation of a suitable kind for them.
The Government have advanced three reasons for their policy. The first is that only 10 per cent. of the earnings of the hotel industry are in foreign currency whereas 25 per cent. of manufactured goods are exported. This is a wholly misleading argument, because it looks only at the hotel business instead of looking at the holiday business as a whole. Hotels are the anchor of the holiday trade. If the hotels are not up to scratch, or are not offering the accommodation people want, visitors will not come here and our own people will not want to stay here for their holidays. Every foreign visitor needs at least one thing, and that is a place to sleep.
The second reason the Government advance in favour of their policy is that they are giving £2 million a year to the British Travel Association. I believe that the Association does an excellent job, but it is no good promoting tourism to Britain abroad, a task which the Association is doing well, unless the product it is promoting is good.
The third argument advanced by the Government—and this is, perhaps, the most misleading of all; unfortunately, it has been accepted by many people—is that the service industries are lightly taxed compared with manufacturing industry. My right hon. Friend the Leader of the Opposition dealt with that argument earlier and showed how it is wholly fallacious. The service industries do not have the advantage of industrial building allowances. They are also being deprived of investment grants and they pay tax on the tools of their trade. This is particularly true of the holiday business. Hotels and restaurants, unlike manufacturing industries, pay Purchase Tax on the vast majority of the raw materials which they need to do their business.
I hope that we shall get answers to these points from the Government at the end of the debate. Discrimination against


the service industries must be changed, because it will do serious damage to the economy. I hope that it will be changed sooner rather than later.

8.50 p.m.

Dr. David Owen: Time is short and I wish to make clear from the start that I support the broad outline of this tax. I shall have to spend most of my time examining what I think is an acute deficiency in the tax in its present form. The Minister is given power by the Bill to vary the tax in many ways and I hope that he will do so over the years for the debate has shown that there are many problems and difficulties which have to be ironed out.
The hon. Member for Cheadle (Dr. Winstanley) drew attention to regional discrimination under the tax. It is important to understand that the tax has been introduced with two motives, one long term and one short term. The short-term motive means that the Chancellor cannot give large-scale concessions. Sometimes when listening to the debate it has been painfully apparent that hon. Members do not yet realise the severity of the economic situation of the country. I am not urging the Chancellor to give concessions now. I realise that he has already given significant and very well worth-while concessions particularly to charities and to households containing old or disabled people. I welcome these.
What I ask from the Ministers is some indication that they will look again at the proposal for building into the tax regional flexibility. We know from articles in The Guardian and the studies of E. M. Rawstron and C. R. Lewis that the Selective Employment Tax will fall most heavily on those regions which are least able to pay it. The area next hardest hit to the south-east Region, which contains London's high concentration of service industries, is the south-west region, and parts of Wales and Scotland are also hard hit. These are the very areas for which this Government's regional policies are doing a very great deal. It would be ironic if we had the Department of Economic Affairs introducing its regional and very relevant economic policies and for them to be then adversely affected by this tax.
We still do not know the exact effect of the tax on the regions, particularly

with regard to unemployment, and not only the regions but particular sub-regions. I welcome the tax because it offers an opportunity for this country to rationalise its method of collecting tax and its regional policies. For far too long there has been chaos in all the differing areas. The Ministry of Labour's employment exchange areas, the Department of Economic Affairs sub-regions, the Ministry of Housing and Local Government areas and the Treasury's taxation areas all are different and need to be unified and rationalised so that we can get a systematic analysis of regional and sub-regional statistics. Only if we have that sort of information can the planning policies to which we on this side of the House are committed become effective.
I therefore ask the Government to try to obtain a unified structure and to assess the needs of the regions so that the tax will not have a detrimental effect on those regions and sub-regions which at the moment are poorest and that they will be able to act speedily.

Sir Cyril Osborne: Too late.

Dr. Owen: It will not be too late, because there is another measure which the Bill could enshrine. Not only could it act in a negative way to counteract unemployment which exists but it could anticipate unemployment and be a useful armament in regional policy. This is a positive aspect of the Bill. There are many other aspects such as its flexibility and selectivity. One thing must be said clearly: this is a new tax; it is an innovating tax; it is the sort of tax for which we have been crying out for many years. The switchback economy, the stop-go, was largely due to the fact that those hon. and right hon. Members opposite when they were the Government used blunt, unimaginative, fiscal methods.

Mr. Geoffrey Wilson: Will the hon. Gentleman explain who he supposes would decide the priorities as to the selectivity of this tax in the South-West, and how would local people be consulted?

Dr. Owen: If, as I suggested, the sub-regions of the Department of Economic Affairs were linked with the Ministry of Labour's employment exchange areas, very good statistics would be available. There would be unemployment figures.


Details of industrial building—factory sites—would be known. It would be possible to anticipate depopulation, which is a special problem in the South-West. These are the sort of things at which we are now merely guessing. We cannot anticipate trends. The trouble is that we are planning without the real statistical evidence on which to plan a sane economy. This is a marvellous opportunity.
I know that the Ministry of Labour will say that regional flexibility in this respect would offer even greater problems than the tax already presents. The benefits which would accrue are substantial and would be in accordance with the policy of regional planning accepted by both Conservative and Labour Governments. I urge the Government to consider this suggestion carefully. In its selectivity, in its sensitivity, in its subtleness, this tax could be a very useful armament in our drive to expand the economy. Coming from the South-West I am well aware of our great problems. The Government have advanced a great deal in the concept of regional planning. My suggestion would not involve at this stage any financial commitment. I ask the Government to table an Amendment which enshrines the principle of regional flexibility. If they did so, I for one would welcome wholeheartedly the tax as an imaginative new venture in fiscal reform.

8.58 p.m.

Mr. Gordon Campbell: I am the only Scottish Member who will speak in the debate. I have about two minutes in which to do so. The hon. Member for Plymouth, Sutton (Dr. David Owen), to whom I am grateful for allowing me this time, said that the effects of the tax on various regions were not well known. The Chief Secretary has given information to the House about the percentage of the tax which will be collected in different regions and returned. For the whole of England, 68 per cent. will be returned in premiums and refunds. For the Highlands and Islands—the seven crofting counties—the figure is 18 per cent.
I vigorously oppose this inequality in the application of the tax. It is this crazy system of selection and premiums which will have a very marked effect on the

North of Scotland and the Highlands. This is an area where, according to the latest available figures—those for 1965—manufacturing industry provides employment for only 10 per cent. of the working population. The Government cannot expect a tax of this kind to create new manufacturing industry in large quantities overnight.
In an area like this, and in all large rural areas of Scotland, the service industries must always be the preponderant industries. The time will come when the highest level of tax per head of population will be paid in the rural areas, particularly in the North of Scotland and the Highlands, and then that tax will be handed out in premiums to manufacturing industry in the South. This is clean contrary to all the protestations written into the White Paper on the Scottish Economy, which came out in January. In May, we had a Budget which produced this tax, which will do exactly the opposite.
I ask the Government, even at this late stage in their thinking, to reshape their Bill to take account of regional requirements and not to allow it to go forward to make utter nonsense of everything they have been saying about regional development. They keep saying that their other policies are assisting regional development. This is nonsense. Setting up planning boards does nothing in itself. If they wish to prove that they want to do something, they can do it on this Bill.

9.0 p.m.

Sir Keith Joseph: My first duty is to congratulate the hon. Gentlemen the Members for Bristol, North-East (Mr. Dobson) and for Uxbridge (Mr. Ryan) on two excellent maiden speeches. They are both fluent and vigorous speakers of force and lucidity. They both spoke up well for their constituencies, both spoke warmly and courteously of their predecessors, and both espoused causes—the hon. Member for Bristol, North-East cricket and construction, and the hon. Member for Uxbridge part-time workers—which are central, cricket coming under sporting charities, to the Bill. We hope to hear plenty more from them during this Parliament.
The debate has been notable as the speakers on both sides have, obviously,


known their subject backwards, and, with very few exceptions, they have torn the Bill into small pieces. The Selective Employment Tax was, I think it is generally understood, born of a perfectly understandable effort by the Chancellor to find a way to deflate to the amount he judged necessary with minimum political unpopularity. There is nothing in the least discreditable in that if the Measure is properly prepared.
But the Chancellor sought at the same time to achieve several quite separate objectives. The Bill is designed not only to deflate but also to improve the use of labour, to help exports, and to widen the tax base. There is something to be said for each of these objectives in detail, but the resulting legislation for the Selective Employment Tax, thrown together in the greatest haste, tackles them all at once and, in addition, the thoroughly wrong-headed objective of altering the structure of the economy. The end result is a confused and even dangerous muddle which will achieve little of its aims and a very great deal of unpremediated damage.
There has been in this debate virtually no support for the Bill whatever. The right hon. Gentleman the Minister of Labour read his Treasury brief honourably but without a spark of enthusiasm, and from most Government supporters there has come only dutiful and minimal support. We have had two of the most impressive, well-informed, passionate and trenchant speeches I have ever heard in 10 years in the House. I refer to the speeches of the hon. Members for Sheffield, Brightside (Mr. Winterbottom) and Newcastle-upon-Tyne, East (Mr. Rhodes). They criticised the Bill from positions of great knowledge. The hon. Member for Brightside called it "an anomaly-creating Bill." He said that "from a practical point of view it is useless," and he went to prove that it is more than useless and, in his view, it will be actively damaging. The whole House will wish to pay tribute to those hon. Members for the forthright and highly articulate way in which they put their views. We can only hope that the Government will take note of them.
We on this side have a number of major criticisms of the Bill. First, we want to criticise the concept of selection itself in taxation policy. This is a highly dan-

gerous weapon in a Government's hands. Of course, to some extent, selection is unavoidable in taxation. In excise duties and Purchase Tax it is a necessary evil, but the purpose of these taxes is to raise revenue. The Selective Employment Tax has no such moderate limits.
Its purpose is, among other things, to promote long-term structural change. I acquit the Chancellor of the Exchequer of personal arrogance and I hope that he will not misunderstand me. But the concept that the Government can embark upon long-term structural change by discriminatory taxation is an arrogant and dangerous concept. It is not intended arrogantly and dangerously, but it must have that effect.
We all know that Governments of all parties do enough harm by doing the minimum they have to do without blundering into activities where the wisest and the shrewdest are bound to cause consequences they never intended. How can the Government know what structural changes to aim at? If, by a miracle, they do know, how can they know how to achieve them? If, by a double miracle, they know both answers, how can they be sure what side effects there will be? These are the sort of thoughts one has and we suggest—nay, believe—that this Bill with selectivity at the centre is far more likely to do great harm than good.
We are all in favour of the Government pursuing the general concept of efficiency, but the Bill gives the Government huge power to tinker in a capricious and discriminatory way with different parts of the economy. The hon. Member for Bright-side and the hon. Member for Newcastle-upon-Tyne, East, illustrated some of the evils which can flow from the efforts of well-meaning people to go further than their knowledge justifies.
We believe that the broad use of the selection principle in the Bill is a second major point of criticism. The Bill hits services in order to subsidise manufacture—all this based on a Standard Industrial Classification which was intended for a different purpose. Is the surplus labour in the economy only in service industries? Of course, we know that it is not. Is manufacturing industry so efficient that it deserves, regardless of the merit of any particular enterprise, to be subsidised? Of course it is not.
We know that manufacturing is riddled with restrictive labour practices, sometimes by the fault of management and men together and sometimes by fault of one group alone. There is said to be a shortage of labour for manufacturing. No doubt there is a shortage of skilled craftsmen, but ex-waiters and bank clerks will not fill the gap. Most of them would not even accept the retraining. Any labour which is released under the Bill—it will be precious little—is not likely to help much in filling gaps in manufacturing industry.
The concept that services are secondary in the economy and manufacturing is primary is naive. In the war many manufacturing industries vanished while, at the same time, many services were given essential privileges—for example, their people were kept from war service—because their services were so indispensable. I commend to the Government what was said by the hon. Member for Brightside. He said "that production and distribution are two wings that should fly together". Let the Government ponder upon that.
We also disagree with the system of giving premiums to manufacturing industry. It is a positive encouragement to inefficient manufacturing. The Chancellor should contemplate that firms which will do best under the Bill are low-profit firms with large labour forces. They have large labour forces because they are over-manned and they make a small profit because they are inefficient. In these circumstances, the premiums they will get for the existing labour force will form a high proportion of the small profits they are making. The Government, quite wrongly, are giving very big dividends to inefficient manufacturers who are not up to date. The premium is not right for manufacturing and discriminatory taxation is not right for services.
There is an even more serious argument against the Government. Once more we have the spectacle of a Socialist Government working against the economic grain. They do not mean harm, but they do harm. There is a large service element in all modern technology. As my right hon. Friend the Leader of the Opposition explained, all prospering societies show

a trend towards the service industries. Just as in the past this country modulated from a vast proportion of our labour force in agriculture to a vast proportion of our labour force in manufacture, so now we are seeing the modern equivalent in a great shift from manufacture into the service industries. Manufacturers will produce more and more goods with fewer and fewer men, releasing men and women for the growing service industries which any prospering and sophisticated economy must have.
My hon. Friend the Member for Blackpool, South (Mr. Blaker) gave an example of this principle from recent American history. Let me carry the story further. A few months ago, the President of America issued a report on labour projections. He showed what the projections were for the use of labour in the period 1965–70. In America, during those five years, manufacturing employment will increase by 5 per cent., but service employment will increase by 25 per cent., and there is an economy whose efficiency we would do well to copy.
The next big criticism—and I am not inventing these criticisms; they are the natural result of the Bill—is that we do not believe that the Bill will help our economic position. There is, first, the huge forced loan starting in September. What about the timing of this new dose of deflation? What about credit? What about the capacity of the public, who will have to pay this forced loan, to raise the money to pay it? The Chancellor has spoken of considering allowing a relaxation in the credit squeeze. We hope that he will tell us something about his idea of the correctness, now nearly two months after his Budget, of this new dose of deflation and tell us something more about how people are meant to pay it.
My hon. Friend the Member for Birmingham, Selly Oak (Mr. Gurden) spoke, quite rightly, of the huge interest burden which this forced loan will impose on the public. As the Chancellor will agree, the effect of the Bill is that the deflation will be effective only if his taxation is passed on to the consumer. So far in the history of his party in government, rising earnings have always swamped the Chancellor's repeated efforts to deflate. What does the Chancellor think will happen this time. Does he think that rising earnings will extinguish the deflationary effect


which he intends? What about the refund next February? Is he happy that suddenly, next February—and even he cannot predict what the economy will be like then—there will be a torrent of £300 million returned in refunds?
I now come to something even more serious. The effect of the Bill on management effort is almost impossible to exaggerate. Management will be forced to take the irrelevant and mischievous factors in the Bill into account in all its decisions. Decisions will be made not for reasons of efficiency alone, but to optimise the benefits or burdens of the Bill. The Bill represents a vast diversion of effort and not once, but as many times as the Chancellor and the Government using their powers under the Bill decide to alter any of the factors of S.E.T.; there will be continuing uncertainty.
The Minister of Labour spoke of changing the Bill—and it will be necessary in many ways in order to improve it. But what a prospect for management that it cannot make a decision and abide by it, but will have to retake decisions all the time the changes occur! Taxation of profits is one thing; it may be more or less, but it is a slice out of the residue. This tax affects every management decision and the more it alters, the more distraction to management it will be and the less long-term effects it will have.
I now turn to the right hon. Gentleman the Minister of Labour. The Bill represents an attack upon every cherished policy of its Ministry. There are a number of ex-Ministers of Labour here. There is my right hon. Friend the Leader of the Opposition, and my right hon. Friend the Member for Enfield, West (Mr. Iain Macleod). They and he share a common set of themes, in that they have worked or are working for the benefit of part-time workers, the disabled and handicapped, the elderly people who want to stay at work and for the benefit of the regions. The Bill hits every sensible manpower policy. I am amazed that the right hon. Gentleman should have lent himself to bringing it in.
We do not want to rub the Chancellor's nose in Amendments; we are glad that he has made a number of concessions already, covering the extractive industry, charities, the disabled as employers and

the method of repaying agriculture. But there is need for more and I want to suggest some of them.
First, we ask him to alter some of the almost idiotic, though I am sure this was unintended, by-products of his choice of strategy. The economy needs to attract part-time workers into industry of all kinds, yet the Bill will tend to drive them out. Whole industries are dependent upon part-timers; shops, "Coops" among them, laundries, cleaning, dry cleaning, contract cleaning, Mrs. Mopps—90 per cent. of them are part-timers—and a host of others. Married women are a special section of part-time workers: a tax upon part-timers as domestic help will not increase the flow of nurses and teachers back to the schools and hospitals.
Most services are desperately short of labour. If they can reduce staff they will dismiss part-timers first and those part-timers cannot move to manufacturing. Already, part-timers have to pay full National Insurance and this is another hard blow. I hope that the Chancellor will tell us that he intends, by one means or another, to refund part or all of this Selective Employment Tax to part-timers—those people working for less than 21 hours a week. I put the same argument to him in favour of the disabled and the handicapped. I recognise that as employers the handicapped are covered, but not as employees, and I ask him to make the same changes in favour of pensioners, who are still at work.
Then I ask him to follow the advice of my hon. Friend the Member for Chichester (Mr. Loveys) and my hon. Friend the Member for Blackpool, South and to look again at the tourist and hotel industries. These are big net export earners. He has already taken investment allowance away from them, and there is little scope for labour-saving. They are 20 per cent. light on labour. We hope that the Chancellor will tell us that the discussions now going on will help both of these great industries. We hope that the Chancellor will reconsider the case put by my hon. Friend the Member for Moray and Nairn (Mr. G. Campbell) and other hon. Members in favour of the regions—Scotland, Wales, the South-West. They are all hit by this tax and he can do something to help them.
Now I turn to the construction industry, and I must declare an interest because I am in a construction company. This industry is generally short of labour. It should, and will, increase its productivity. Its record has been approximately an increase of 5 per cent. in productivity a year since the war, but the effect of this tax will be to put prices up, to threaten specialist sub-contractors and many main contractors, and it is entirely unfair in its impact on pre-Budget contracts with months or years to run.
Hon. Gentlemen opposite will take very seriously the threat that the Bill introduces, in encouraging "labour-only" sub-contracting, some of which is responsible and decent, some of which is anything but those two things. Many small, labour-intensive businesses in contracting and other fields, painting, for instance, will perish as a result of the Bill. Their men will either go self-employed, or else they will move to new maintenance and service departments of manufacturing, probably run less efficiently than their specialist predecessors.
I turn to my hon. Friend the Member for Windsor (Sir C. Mott-Radclyffe), and his excellent speech on the importance of export earnings by insurance companies. Surely the Chancellor sees that his discrimination will injure our invisibles in insurance and banking? As for home insurance, the tax will only cut investment savings, and will not save staff.
I ask the right hon. Gentleman also to look at the near-charities—hospital savings schemes, for instance—which are still bitterly affected by the Bill. Hospital savings schemes will be paying £40,000 extra a year under the Bill. I ask him to bear in mind the comment of the right hon. Member for Leyton (Mr. Gordon Walker) that Reuters will be crippled by his tax.
I turn to the confusions, distractions and unfairnesses resulting from the Bill. There is such a gulf between the tax and no refund, on the one hand, and refund plus premium, on the other, that industry will be distorting itself to optimise the result. Fiscal factors, not efficiency, will dictate the placing of staff. Groups seeking to rationalise their operations—the "Co-ops" among them—will

have their purposes blurred. Companies will consider moving offices to factories, hiving off groups of office workers from the factories, adding service departments for work like cleaning and canteens far better done by specialists. My right hon. Friend the Member for Reigate (Sir J. Vaughan-Morgan) gave a number of vivid examples. Specialists will perish. But there will be no real change except that their staff will go under manufacturing umbrellas and will probably be managed less well.
Some firms, after great efforts, will end up all square. For them it will be a vast and sterile exercise. Manufacturers will be tempted to take on extra men to qualify for the refund and premium by outnumbering their office staff. Cross-postings, redeployment, even mergers, will be the order of the day, not genuinely between services and manufacture, but within firms and purely nominally, like cleaning staff being moved from specialist contractors to their clients.
Then there are a number of puzzles. The hon. Member for Newcastle-upon-Tyne, East produced a number. Let me produce a few of my own. What will happen to offices with research and engineering staff in them? Will the Chancellor tell us the answer to the bakery conundrum? What will happen to theatres and orchestras? What will happen to the London Library? What will be the end result of the differential treatment of transport, depending on who is the employer? What about professional offices of all sorts who pay the tax although the firms for whom they work do not have to pay a tax if they have professional men and women on their staff and the factory staff outnumber the professionals? That is unfair between the professions and industry.
What about private schools? What about private hospitals? What about private nursing homes, which do not happen to be charities?

Mr. Callaghan: They will not get it.

Sir K. Joseph: The right hon. Gentleman says that they will not get it. Will they survive at all? That is the question which the right hon. Gentleman has to answer. We know that, alas, they will not get it.
What about the unfairness as between the construction industry paying the tax


and the direct labour departments of local authorities, not all of which, to put it mildly, are very efficient? What about competition between private enterprise electrical and gas sub-contractors and the electricity and gas boards which will get a refund? What about the threat of which the hon. Member for Brightside warned us—of men moving from industry and services of all sorts into self-employment?
What about export houses and forwarding agents who have to pay a tax when people doing the same job on shipping and air lines get a refund? What about the nationalised industries escaping the tax altogether? They are not the most efficient users of labour. Since October, 1951, service prices have risen 78 per cent., whereas nationalised industry prices have risen 123 per cent. Yet services are taxed and nationalised industries are not.
We ask the Chancellor of the Exchequer to answer a number of questions. Will he tell us what instructions he will be giving the banks about releasing credit to enable industry, large and small, farmers, professional people, charities and private employers, to pay this tax and make the forced loan? What will the Chancellor do about part-time workers, about the disabled, about elderly workers? What will he do about hotels and tourism? What will he do about the damage to service employments in Scotland, Wales and the South-West?
We ask him whether he is sure that the economy will benefit, first, from the forced loan and, then, from the sudden release of £300 million at one time next February. We ask the Chancellor, now that he is taxing labour employed in services, to re-establish investment allowances for the service industries.
I apologise if my speech has been a long catalogue of complaints and criticisms. But I should not be doing justice to the Bill if I had spent less time on them, and there are very many which there has not been time to make.
I will try to sum up our verdict on the Bill.
If a Tory Chancellor had imposed such a burden on consumers by a tax so hard and crude, the whole Labour movement would have risen in opposition.
I wish that I had had the wit to make up that sentence myself, but it is a quota-

tion from a speech by the Chairman of the Co-operative movement.
Prices will rise, and that is the Government's object, because in no other way will they get the deflation which the Chancellor has told us is his purpose. But they will rise not the 1 per cent. which the Chancellor has predicted, but much more, and again I have quotations from the Co-operative movement which may be slightly extravagant, telling us by how much more they will rise. The deflation may or may not be right in size or timing, but if it is anything like the previous efforts of the Chancellor, it will be drowned by the rising earnings which have so far brought all the Chancellor's previous attempts to naught.
The economic benefits will be nil. It will be no help to the redeployment of labour and no help to the balance of payments. Inefficient production will be subsidised, and the Government are acquiring a highly dangerous weapon of discrimination with which to tinker with the economy.
Against all reason, against the policy of all parties, the Bill hits part-time workers, married women, the disabled, the handicapped and the elderly workers. It creates a vast upheaval for a minimal, if any, benefit. It creates a great rigmarole of paper, and the whole effort will lead to a mountain of misplaced effort. Once again, management will be drowned in work to react to clumsy Government interference. There will be no certainty that all will not have to be done again and again as the Government struggle to minimise the damage they do by altering the factors.
The Bill is distracting, dangerous and distorting, with many damaging byproducts which can already be identified and with many more which will emerge as time goes on if it is passed. We have the prospect of management contorting its enterprises, coalescing, moving, taking on labour, transferring labour, dismissing part-timers, expanding here and contracting there, not for efficiency, but for the completely irrelevant purposes of the Bill. Vast sums of money will pass. Vast numbers of management hours will be wasted. A vast amount of paper will be generated. The end result will generally bear no relation to the national interest, and that is why we oppose the Bill.

The Chancellor of the Exchequer (Mr. James Callaghan): We have listened to a catalogue of woes and distortions in the economic system which, if I am to believe both the Leader of the Opposition and the right hon. Member for Leeds, North-East (Sir K. Joseph), are clearly going to be worse than the Bolshevik Revolution. We got rather near to it, because I was told that I had a streak of Stalin in me.
However, it is not a bad idea to keep a sense of historical perspective about these things. It is something which is always said whenever an innovation of this kind is introduced. I assure the House that the country has been ruined on at least five previous occasions. The ruin has been described in language just as extreme, indeed, almost more extreme than that used today. It sprang from innovations which have become part and parcel of the weft, the woof and the warp of the British fabric of society.
In order that hon. Members may place the last three minutes of the right hon. Gentleman's speech in some perspective, I think that it would be interesting to read what was said about the introduction of Income Tax. Some called it
a measure so unjust in its principle and partial in its operation that no modifications of it could remove their objection".
Others called it
an outrage upon the popular opinion".
There is a good chapter on this, and I commend it to the right hon. Gentleman when he is thinking up his weekend speech.
When Estate Duty was introduced, the fury of the Conservative Party knew no bounds. We were told that it was altogether vicious, that its effects would be disastrous, and that it was an outrage on morality. I think that by comparison with my predecessors, in terms of the language that is being used I am getting just about the same treatment, and the results will be just about the same too.
The plain truth is that there has been gross exaggeration of the effects of the tax by those who are battening on every vested interest to kick the Government. I shall come to the detailed points in a moment. I merely repeat that the exaggerated language which has been used has no relation to the Measure which we are discussing today.
I relate it, for example, to the amount of tax compared with the wage bill or the labour costs. I need not repeat all the things which the right hon. Gentleman said. Most employers in this country are paying increases in wages at least twice as much as the amount of tax every year. They seem to absorb it somehow. They do not seem—

Mr. Heath: This is the result of the right hon. Gentleman's incomes policy.

Mr. Callaghan: The point I am making is that the exaggeration that is being used about the amount involved here bears no relationship to the nature of the problem that we are discussing. There are marginal cases where there will be difficulties, but, in general, there will not. It is not true. It does no service to the cause of truth to exaggerate the effects which will follow.
I listened to the right hon. Gentleman the Leader of the Opposition, who was in good voice this afternoon. [HON. MEMBERS: "Hear, hear."] He should have been, he has not been with us for the last couple of days. The cut which hurt me most was when he accused us of indolence. I do not know what his right hon. Friend thought about that. The right hon. Gentleman said that we had been indolent, after we had been here until 5 o'clock this morning, and 4 o'clock yesterday morning. I thought that that was a bit harsh. However, I do not complain.
The right hon. Gentleman asked a number of questions with which I propose to deal, but before doing so I should like to join the right hon. Member for Leeds, North-East in congratulating my hon. Friends the Members for Bristol, North-East (Mr. Dobson) and Uxbridge (Mr. Ryan) on the way in which they made their cases.
The right hon. Member for Leeds, North-East fairly recognised the objectives of this tax, and he put it in a way about which I do not complain. The truth is that not only does he recognise its objectives, but the country, too, recognises the objectives of this tax. This is why, although everybody who is required to pay it can make a jolly good case why he should be excused, the country has broadly accepted both the objectives and the methods of this tax.
In truth, the Opposition do not really object either. The right hon. Gentleman the Leader of the Opposition said so. He said that he was in favour of a payroll tax.

Mr. Heath: Not selective.

Mr. Callaghan: Not selective? I am not sure how true that is. I understood him to say that he wanted it differentiated by regions, so he wants a degree of selectivity there as between one area and another. Therefore it is not true to say that he does not want it to be selective.
As I understand it, he is in favour of transferring—and the right hon. Member for Enfield, West (Mr. Iain Macleod) said this too—part of the cost of the social services to the shoulders of industry. That will have exactly the same effect as putting up taxes, exactly the same effect of increasing prices and exactly the same deflationary effect that is proposed now. The difference between the proposal of the right hon. Gentleman and what we are doing is that we are ensuring that the burden of the tax does not fall on manufacuring, whereas the burden of the tax would, in his case, fall on both manufacturing and services. There is no basic difference in concept between what the right hon. Gentleman the Leader of the Opposition proposed this afternoon and what is being done in the Bill.
The major difference is that he does not believe that services should be singled out for this form of taxation. He has not challenged the total amount of taxation that is required, and, indeed, he said the other day that we are living in an inflationary situation. He has not challenged the objective of a payroll tax. Therefore, I say that, despite the objections of right hon. and hon. Gentlemen opposite, they accept this tax. They accept it in the same way that the country accepts it.

Mr. Heath: I cannot allow the Chancellor of the Exchequer to try to get away with a statement like that. I should have thought that even he could see the essential differences between moving part of the cost of the social services on to industry and the concept in the Bill. First, these would be very small amounts compared with the total amount which he is taking out of industry, a large part of which he is then refunding. This would be concerned

only with the net balance. Secondly, it could be done in the same way as at present, at regular intervals once a week, and there would not be all the problems coming from that. There are many differences in concept between the two.

Mr. Callaghan: The right hon. Gentleman has made a couple of detailed points of difference and I concede those to him. The right hon. Gentleman cannot have it both ways. The Opposition are either in favour of the objectives of this kind of taxation or they are not. They really want to accept the principle of the tax but to try to get the maximum benefit in the country out of opposing it. We shall pin them down on this. The statement which was made by the right hon. Gentleman the Member for Enfield, West, before the General Election, and which was made by the Leader of the Opposition during the General Election campaign and again by him today, shows quite clearly that they accept the principle of a tax of this sort but that they would make it more expensive to manufacturing industry. That is the basic difference.
The right hon. Gentleman the Member for Leeds, North-East said something which I must challenge straight away, because I do not think that it is in the record of his party and it is certainly not in ours. He said that Governments do least harm by doing as little as they must, and he thought that it was intellectual arrogance for Governments to assume that they could impose long-term structural changes on the economy. In that case, what was his regional development policy about? What were his party trying to do in those days? Were they or were they not trying to impose long-term structural changes on the economy in order to ensure that unemployment did not blight the North-East, Scotland, Wales and other parts of the country?

Sir K. Joseph: I was arguing in the context of discriminating by taxation between one form of employment and another, and I made a strong case afterwards for regional discrimination, but not as between forms of employment.

Mr. Callaghan: The right hon. Gentleman's own Government introduced the investment allowances, and free depreciation in the development areas. If that is not attempting to influence the


long-term structural changes of the country, I do not know what is. Even though there may be differences between us I think we all accept the need for intervention in order to try to achieve long-term structural changes. It is the continuation and the more successful development of the policy that was started in 1945–50 and was then allowed to drop by the Conservatives in the middle fifties. They picked it up again when unemployment grew in 1961–62, and we are intensifying it.
This is why we can envisage a tax of this kind now, while our Conservative predecessors, who introduced a "mini mouse" of this sort in 1961, were never able to operate it, because the level of unemployment in the regions was so high and the structure of the regions so weak that they dared not impose it in the form in which it was proposed. It is an entirely different set of circumstances in which we are operating today, when we can envisage a tax of this nature knowing that the structure of the regions and employment in the regions is much stronger than it was in 1961.

Mr. Iain Macleod: Is the right hon. Gentleman aware that in 1961 when my right hon. and learned Friend the Member for Wirral (Mr. Selwyn Lloyd) put forward this proposal it was severely attacked, also that the rate which he refers to as a rate of heavy unemployment in 1961 was precisely one-tenth of 1 per cent. different from what it is today?

Mr. Callaghan: The right hon. Gentleman has made that point before. It does not destroy my case, because at the first whiff of disinflation the regions suffered most. That was why my predecessor, the right hon. and learned Member for Wirral (Mr. Selwyn Lloyd), was not able to do the job that we are now doing.
I now turn to some of the more detailed points that have been made. Quite apart from the exaggerations that have been used, I am sorry if I disappoint the Leader of the Opposition when I say that the administration of this tax is easy and cheap. We are raising a net sum of about £240 million at a total cost of £1¼ million—something like half of 1 per cent. If it is necessary to

raise additional revenue, this is a very good way of doing it on the cheap. In my view this is one of its great advantages. We were able to use the existing organs of Government to enable us to make the change. I welcome this change as being profoundly important and one which will be extremely beneficial in the years to come.
I now turn to the questions I was asked by the Leader of the Opposition. He referred to the "quarterly convulsion" which will take place when repayments are made. It will not operate in that way, because repayments will be made throughout the quarterly period. When one considers the vast sums which pass in and out of industry the sums that we are dealing with, although large, will not cause anything in the nature of a convulsion. They will represent a small proportion of the labour costs of industry, to take one example.
The hon. Member quoted some figures with which I do not disagree, but I want to give one example of the exaggeration which has been used. We were told that the farmers will have all their liquidity removed. I ask those who use that argument to pause for a moment and to think what the average labour force on a farm is. Let them ask themselves how much tax will have to be raised over a period of 13 weeks and let them relate it to the farmer's turnover. They will find that in comparison it is infinitesimal. We know that this is so. After all, in relation to wages, the tax is only a tiny percentage. The hon. Member for Windsor (Sir C. Mott-Radclyffe) raised this point.
Let me give him one example of one farm which I know, but which, alas, I do not have the good fortune to own. It has half-a-dozen employees and its tax for a year will be approximately £400 and, for a quarter, £100. That is what that farmer will have to find. His annual turnover is at least £60,000. All this tax is taking—despite the talk about a great tax-free loan being required—is £100 for a quarter. Many people of this kind spend as much as that on an afternoon at Ascot. As regards the question—

Sir John Rodgers: The right hon. Gentleman talks about an infinitesimal sum. Does he not agree that


he will collect about £1,200 million in order to raise an ultimate revenue of £240 million?

Mr. Callaghan: I thought that that was obvious from all the discussion. I do not see that that intervention was worth while.
The right hon. Gentleman asked whether this would be within G.A.T.T. My advice is that it is within G.A.T.T. If we were to say, of course, that it was an export subsidy and could be thought to be such, it would not be within G.A.T.T.; but because the premiums are being extended throughout the whole of manufacturing industry, this cannot be challenged by G.A.T.T. I know that no right hon. Gentleman opposite would want to cast any doubts on that. Therefore, I am glad to say that I am confident this general relief to manufacturing is well within our international obligations.
Now I come to the question of contracts. This was raised by the right hon. Member for Leeds, North-East. There will be a great incentive to industrial building. It will follow that if a manufacturing establishment in the construction industry has teams of assembly workers out on the sites, provided those assembly workers are serviced and paid and directly controlled from the head office, the whole of those groups of workers will be eligible for the premium. This will have a very valuable effect in altering the shape of the construction industry by speeding up industrial building. I welcome it as a great improvement.
The right hon. Gentleman mentioned the transitional problem of the large number of contracts which are current between Government and private industry. I agree that these contracts were entered into before these fiscal arrangements were proposed. Although, in general, it is not Government practice to reckon to make good to contractors the cost of tax changes, the Government feel that there is a special case here. In view of this, Government Departments and other bodies responsible for letting contracts wholly financed by the Exchequer will be authorised to agree with any contractors who request that they should do so some revision of the price on account of the S.E.T. payments which the contractor will have to make from September next.
It would be contrary to the broad aims of policy if the whole of the effect of the tax were to be passed on to the consumer. I have always said that. In view of this, it is not intended in general that the adjusted prices should enable the contractors to recoup the whole of their tax payments. In doing this, the Government will be acting in a reasonable way in their capacity as a party to current contracts and I would expect that local authorities will act similarly.
On contracts between two parties in the private sector, it is not possible for me to offer help. It will be for the supplier and customer to decide between themselves whether any adjustment of the contract price should be negotiated. But the Government have indicated their view in relation to their own contracts.
I now turn to two groups of persons whose cases have been raised—the elderly and the part-timers. I emphasise again that this is a tax on employers, to be paid by employers. It is not a tax on the elderly. Nor is it a tax on part-timers. [Interruption.] It is a tax on employers.
The position of the elderly is, of course, one which I would want to keep under very close review and I have undertaken to do that. However, we are introducing this tax in a period of very full employment. There is at present a great swirling around of people offering jobs to part-time workers—

Sir Douglas Glover: To the disabled?

Mr. Callaghan: —and to the disabled and the elderly. There are more elderly people at work now than at any time in our history, and this is a remarkable social phenomenon. A great many of these elderly people are in occupations which are eligible for the premium, and for them there is no problem. Indeed, I think, from the figures I have—such as they are; they are only estimates—that well over half of the elderly are in places where the premium will be paid. As I mentioned, this is what the position looks like on the estimates I have and, since they are only estimates, I hope that I will not be pressed further on the subject.
My view is that, in conditions of full employment, it would not be right-indeed, I suggest that it is cruel—to make a great storm about elderly people being


put out of work, when at the present time, there is
no sign at all of that happening. I do not think that any hon. Member on either side of the House would wish to encourage this kind of thinking about these people. We should encourage employers to keep them and, in most cases, I am sure that they will wish to keep them. The tax is a liability which is paid by every employer, just as any other tax would be paid. As I say, we will need to watch the position very carefully to ensure that, on social and economic grounds, the fears which I know exist, and some of which have unfortunately been fostered, are not justified.
I come to the question of part-timers. In respect of anyone who works for eight hours or less—[Interruption.]—his employer does not pay the stamp and, therefore, is not liable to pay the tax.

Sir C. Osborne: Per week?

Mr. Callaghan: Yes. An employer is not liable for anybody who works less than eight hours a week. Many people are employed on Saturdays only, particularly in shops, although in some cases they may be employed on Fridays. However, a great many people are employed for eight hours or less. Their employers do not pay the stamp and, therefore, the employers are not liable for this tax.
An obvious way of dealing with this aspect would be, as has been suggested, to raise the eight-hour limit below which employers' National Insurance contributions are not payable, but this would give rise—and this is a factor which I had to take into account—to serious difficulties on pension grounds. If the limit were raised, the effect would be to take people out of full National Insurance cover and so take them away from the benefit and rights which they at present enjoy, thus seriously damaging many employees' interests, while we would be helping their employers.
This is the difficulty about raising the limit from eight to, say, 20 hours or whatever figure might be suggested. Again, this is a problem which we must look at carefully. We will have to see how it operates, remembering that we are operating in a condition of full employment. If changes can be shown to be necessary—in terms of administration or

in terms of need—then those changes will be made.
The Bill is clear in giving my right hon. Friend the Minister of Labour power, by order, to alter a number of provisions. They can be altered either in that way or, if they relate to charging, through the Finance Bill. It is obviously our intention, with a new tax like this, to keep it under scrutiny and continuous review to see how it works out.
I come to the question of the regions and I must again say that a great deal of exaggerated poppycock has been talked on this issue. [Interruption.] The Leader of the Opposition said that what we had done was mere bogus camouflage which this tax completely offset. This really is the language of hyperbole.
I will rehearse some of the things that are being done. In the development districts investment grants for plant and machinery for qualifying processes are to be given at the rate of 40 per cent. In the case of Local Employment Act assistance there will be assistance for projects providing extra jobs in development areas. There is the control of office development providing extra jobs in development areas. There are the industrial development certificates. There is preferential access to the Public Works Loan Board and exemption for development districts from deferring capital projects. To say that all this is set off by the tax is rubbish. It is absolute nonsense to talk in that way. That is the kind of exaggeration which in time will rebound on the heads of those who are using it.
We shall certainly watch the development of this tax and we shall see how it affects all these sectors. What hon. Members opposite are in fact saying is, "Let us do nothing. Leave it alone. Let us go on in the same old way as we did for 13 years". We do not propose to do that.

Mr. Heath: Mr. Heath rose——

Hon. Members: Sit down.

Mr. Callaghan: I really must get on.

Mr. Heath: I do not wish to debate with the Chancellor, but I want to ask him for an assurance that he will recall the point about bank loans.

Mr. Callaghan: As regards bank loans, we had a discusison in the course of the Committee stage of the Finance Bill the night before last. I have nothing to add to what I said then. I said it was too soon yet to give an indication.
I should like to say a word about the co-ops. I cannot undertake to exempt the co-ops from payment nor to repay them. They are a part of the services of the country and, as part of the services of the country, in the words of the Co-operative News, they must learn to live with the tax. Among other things it is a challenge to Co-operative efficiency. A great many co-operatives are at this moment reorganising themselves in order to face the challenge. I hope that they will continue to do so.
As to marginal cases that are left, I want to go into those very carefully. It is, of course, absolutely true that the overwhelming majority of manufacturing establishments are clearly on the right side for receiving the premium. If we look at the position of the labour force in all the major manufacturing groups we find that the proportion of those entitled to receive the premium against those in

non-qualifying activities is such that the overwhelming proportion of manufacturing concerns will receive the premium.

Wherever we draw the boundary a few are bound to be on the other side, but the great majority will be well behind the front line receiving the premium. This is why there has been so little protest, indeed no protest, from industry.

This is an innovating tax, one which is received and generally welcomed throughout the country. The Opposition—

Mr. Geoffrey Hirst: Mr. Geoffrey Hirst (Shipley) rose——

Mr. Callaghan: The hon. Member ought to have no voice left after all the speeches that he has made recently.
The Opposition have tried and failed to find a theme by which to be an Opposition. This will be an innovating and reforming tax which will be of great value to the economic development of the country.

Question put, That the Bill be now read a Second time:—

The House divided: Ayes 323, Noes 252.

Division No. 58.]
AYES
10.0 p.m.]


Abse, Leo
Buchanan, Richard (G'gow, Sp'burn)
Dunwoody, Dr. John (F'th & C'b'e)


Albu, Austen
Butler, Herbert (Hackney, C.)
Eadie, Alex


Allaun, Frank (Salford, E.)
Butler, Mrs. Joyce (Wood Green)
Edelman, Maurice


Alldritt, Walter
Callaghan, Rt. Hn. James
Edwards, Robert (Bilston)


Allen, Scholefield
Cant, R. B.
Edwards, William (Merioneth)


Anderson, Donald
Carmichael, Neil
Ellis, John


Archer, Peter
Carter-Jones, Lewis
English, Michael


Armstrong, Ernest
Castle, Rt. Hn. Barbara
Ennals, David


Ashley, Jack
Chapman, Donald
Ensor, David


Atkins, Ronald (Preston, N.)
Coleman, Donald
Evans, Albert (Islington, S.W.)


Atkinson, Norman (Tottenham)
Concannon, J. D.
Evans, Ioan L. (Birm'h'm, Yardley)


Bacon, Rt. Hn. Alice
Conlan, Bernard
Faulds, Andrew


Bagier, Gordon A. T.
Corbet, Mrs. Freda
Fernyhough, E.


Barnes, Michael
Cousins, Rt. Hn. Frank
Finch, Harold


Barnett, Joel
Craddock, George (Bradford, S.)
Fitch, Alan (Wigan)


Beaney, Alan
Crawshaw, Richard
Fletcher, Raymond (Ilkeston)


Bellenger, Rt. Hn. F. J.
Cronin, John
Fletcher, Ted (Darlington)


Bence, Cyril
Crossman, Rt. Hn. Richard
Floud, Bernard


Benn, Rt. Hn. Anthony Wedgwood
Cullen, Mrs. Alice
Foley, Maurice


Bennett, James (G'gow, Bridgeton)
Dalyell, Tarn
Foot, Sir Dingle (Ipswich)


Bidwell, Sydney
Darling, Rt. Hn. George
Foot, Michael (Ebbw Vale)


Binns, John
Davidson, Arthur (Accrington)
Forrester, John


Bishop, E. S.
Davies, G. Elfed (Rhondda, E.)
Fowler, Gerry


Blenkinsop, Arthur
Davies, Ednyfed Hudson (Conway)
Fraser, John (Norwood)


Boardman, H.
Davies, Harold (Leek)
Fraser, Rt. Hn. Tom (Hamilton)


Booth, Albert
Davies, Ifor (Gower)
Freeson, Reginald


Boston, Terence
Davies, Robert (Cambridge)
Galpern, Sir Myer


Bottomley Rt. Hn. Arthur
de Freitas, Sir Geoffrey
Gardner, A. J.


Bowden, Rt. Hn. Herbert
Delargy, Hugh
Garrett, W. E.


Boyden, James
Dell, Edmund
Carrow, Alex


Braddock, Mrs. E. M.
Dempsey, James
Ginsburg, David


Bradley, Tom
Dewar, Donald
Gordon Walker, Rt. Hn. P. C.


Brooks, Edwin
Diamond, Rt. Hn. John
Gourlay, Harry


Broughton, Dr. A. D. D.
Dickens, James
Gray, Dr. Hugh (Yarmouth)


Brown, Rt. Hn. George (Belper)
Dobson, Ray
Gregory, Arnold


Brown, Hugh D. (G'gow, Provan)
Doig, Peter
Grey, Charles (Durham)


Brown, Bob (N'c'tle-upon-Tyne, W.)
Dunn, James A.
Griffiths, David (Bother Valley)


Brown, R. W. (Shoreditch & F'bury)
Dunnett, Jack
Griffiths, Rt. Hn. James (Llanelly)


Buchan, Norman
Dunwoody, Mrs. Gwyneth (Exeter)
Griffiths, Will (Exchange)




Gunter, Rt. Hn. R. J.




Hale, Leslie (Oldham, W.)
Mackintosh, John P.
Roberts, Goronwy (Caernarvon)


Hamilton, James (Bothwell)
Maclennan, Robert
Roberts, Gwilym (Bedfordshire, S.)


Hamilton, William (Fife, W.)
MacMillan, Malcolm (Western Isles)
Robinson, Rt.Hn. Kenneth (St.P'c'as)


Hamling, William
McMillan, Tom (Clasgow, C.)
Robinson, W. O. J. (Walth'stow, E.)


Harper, Joseph
McNamara, J. Kevin
Roebuck, Roy


Hattersley, Roy
MacPherson, Malcolm
Rogers, George


Hazell, Bert
Mahon, Peter (Preston, S.)
Rose, Paul


Healey, Rt. Hn. Denis
Mahon, Simon (Bootle)
Ross, Rt. Hn. William


Heffer, Eric S.
Mallalieu, E. L. (Brigg)
Rowland, Christopher (Meriden)


Henig, Stanley
Mallalieu, J.P.W.(Huddersfield, E.)
Rowlands, E. (Cardiff, N.)


Herbison, Rt. Hn. Margaret
Manuel, Archie
Ryan, John


Hilton, W. S.
Mapp, Charles
Shaw, Arnold (Ilford, S.)


Hobden, Dennis (Brighton, K'town)
Marquand, David
Sheldon, Robert


Hooley, Frank
Mason, Roy
Shinwell, Rt. Hn. E.


Horner, John
Mayhew, Christopher
Shore, Peter (Stepney)


Houghton, Rt. Hn. Douglas
Mellish, Robert
Short, Rt. Hn. Edward (N'c'tle-u-Tyne)


Howarth, Harry (Wellingborough)
Mendelson, J. J.
Short, Mrs. Renée (W'hampton, N.E.)


Howarth, Robert (Bolton, E.)
Mikardo, Ian
Silverman, Julius (Aston)


Howell, Denis (Small Heath)
Millan, Bruce
Skeffington, Arthur


Howie, W.
Miller, Dr. M. S.
Slater, Joseph


Hoy, James
Mitchell, R. C. (S'th'pton, Test)
Small, William


Hughes, Rt. Hn, Cledwyn (Anglesey)
Molloy, William
Snow, Julian


Hughes, Emrys (Ayrshire, S.)
Morgan, Elystan (Cardiganshire)
Spriggs, Leslie


Hughes, Hector (Aberdeen, N.)
Morris, Alfred (Wythenshawe)
Steele, Thomas (Dunbartonshire, W.)


Hughes, Roy (Newport)
Morris, Charles R. (Openshaw)
Stonehouse, John


Hunter, Adam
Morris, John (Aberavon)
Strauss, Rt. Hn. G. R.


Irvine, A. J. (Edge Hill)
Moyle, Roland
Summerskill, Hn. Dr. Shirley


Jackson, Colin (B'h'se & Spenb'gh)
Mulley, Rt. Hn. Frederick
Swain, Thomas


Jackson, Peter M. (High Peak)
Murray, Albert
Swingler, Stephen


Janner, Sir Barnett
Neal, Harold
Symonds, J. B.


Jay, Rt. Hn. Douglas
Newens, Stan
Taverne, Dick


Jeger, George (Goole)
Noel-Baker, Francis (Swindon)
Thomas, lorwerth (Rhondda, W.)


Jeger, Mrs. Lena (H'b'n&St.P'cras, S.)
Noel-Baker, Rt. Hn. Philip (Derby, S.)
Thomson, Rt. Hn. George


Jenkins, Hugh (Putney)
Norwood, Christopher
Thornton, Ernest


Jenkins, Rt. Hn. Roy (Stechford)
Oakes, Gordon
Tinn, James


Johnson, Carol (Lewisham, S.)
Ogden, Eric
Tomney, Frank


Jones, Dan (Burnley)
O'Malley, Brian
Tuck, Raphael


Jones, Rt.Hn. Sir Elwyn (W. Ham, S.)
Oram, Albert E.
Urwin, T. W.


Jones, J. Idwal (Wrexham)
Orbach, Maurice
Varley, Eric G.


Judd, Frank
Orme, Stanley
Wainwright, Edwin (Dearne Valley)


Kelley, Richard
Oswald, Thomas
Walden, Brian (All Saints)


Kenyon, Clifford
Owen, Dr. David (Plymouth, S'tn)
Walker, Harold (Doncaster)


Kerr, Mrs. Anne (R'ter & Chatham)
Owen, Will (Morpeth)
Wallace, George


Kerr, Dr. David (W'worth, Central)
Padley, Walter
Watkins, David (Consett)


Kerr, Russell (Feltham)
Page, Derek (King's Lynn)
Weitzman, David


Leadbitter, Ted
Paget, R. T.
Wellbeloved, James


Ledger, Ron
Palmer, Arthur
Wells, William (Walsall, N.)


Lee, Rt. Hn. Frederick (Newton)
Panned, Rt. Hn. Charles
Whitaker, Ben


Lee, Rt. Hn. Jennie (Cannock)
Park, Trevor
White, Mrs. Eirene


Lee, John (Reading)
Parker, John (Dagenham)
Whitlock, William


Lestor, Miss Joan
Parkyn, Brian (Bedford)
Wigg, Rt. Hn. George


Lever, Harold (Cheetham)
Pavitt, Laurence
Willey, Rt. Hn. Frederick


Lever, L. M. (Ardwick)
Pearson, Arthur (Pontypridd)
Williams, Alan (Swansea, W.)


Lewis, Arthur (W. Ham, N.)
Peart, Rt. Hn. Fred
Williams, Alan Lee (Hornchurch)


Lewis, Ron (Carlisle)
Pentland, Norman
Williams, Clifford (Abertillery)


Lomas, Kenneth
Perry, Ernest G. (Battersea, S.)
Williams, Mrs. Shirley (Hitchin)


Luard, Evan
Perry, George H. (Nottingham, S.)
Williams, W. T. (Warrington)


Lyon, Alexander W. (York)
Prentice, Rt. Hn. R. E.
Willis, George (Edinburgh, E.)


Lyons, Edward (Bradford, E.)
Price, Thomas (Westhoughton)
Wilson, William (Coventry, S.)


Mabon, Dr. J. Dickson
Price, William (Rugby)
Winnick, David


McBride, Neil
Probert, Arthur
Winterbottom, R. E.


McCann, John
Pursey, Cmdr. Harry
Woodburn, Rt. Hn. A.


MacColl, James
Randall, Harry
Woof, Robert


MacDermot, Niall
Rankin, John
Wyatt, Woodrow


Macdonald, A. H.
Redhead, Edward
Yates, Victor


McGuire, Michael
Rees, Merlyn
Zilliacus, K.


McKay, Mrs. Margaret
Reynolds, G. W.



Mackenzie, Gregor (Rutherglen)
Rhodes, Geoffrey
TELLERS FOR THE AYES:


Mackie, John
Richard, Ivor
Mr. John Silkin and Mr. Lawson.



Roberts, Albert (Normanton)





NOES


Alison, Michael (Barkston Ash)
Bennett, Dr. Reginald (Gos. & Fhm)
Braine, Bernard


Allason, James (Hemel Hempstead)
Berry, Hn. Anthony
Brewis, John


Astor, John
Bessell, Peter
Brinton, Sir Tatton


Atkins, Humphrey (M't'n & M'd'n)
Biffen, John
Brown, Sir Edward (Bath)


Awdry, Daniel
Biggs-Davison, John
Bruce-Gardyne, J.


Baker, W. H. K.
Birch, Rt. Hn. Nigel
Bryan, Paul


Balniel, Lord
Black, Sir Cyril
Buchanan-Smith, Alick (Angus, N&M)


Barber, Rt. Hn. Anthony
Blaker, Peter
Buck, Antony (Colchester)


Batsford, Brian
Body, Richard
Bullus, Sir Eric


Beamish, Col. Sir Tufton
Bossom, Sir Clive
Burden, F. A.


Bell, Ronald
Boyd-Carpenter, Rt. Hn. John
Campbell, Gordon


Bennett, Sir Frederic (Torquay)
Boyle, Rt. Hn. Sir Edward
Carlisle, Mark







Carr, Rt. Hn. Robert
Higgins, Terence L.
Osborn, John (Hallam)


Cary, Sir Robert
Hiley, Joseph
Osborne, Sir Cyril (Louth)


Channon, H. P. C.
Hill, J. E. B.
Page, Graham (Crosby)


Chichester-Clark, R.
Hirst, Geoffrey
Page, John (Harrow, W.)


Clark, Henry
Hobson, Rt. Hn. Sir John
Pardoe, J.


Clegg, Walter
Hogg, Rt. Hn. Quintin
Pearson, Sir Frank (Clitheroe)


Cooke, Robert
Holland, Philip
Peel, John


Cooper-Key, Sir Neill
Hooson, Emlyn
Percival, Ian


Cordle, John
Hordern, Peter
Peyton, John


Corfield, F. V.
Hornby, Richard
Pike, Miss Mervyn


Costain, A. P.
Howell, David (Guildford)
Pink, R. Bonner


Craddock, Sir Beresford (Spelthorne)
Hunt, John
Pounder, Rafton


Crawley, Aidan
Hutchison, Michael Clark
Powell, Rt. Hn. J. Enoch


Crosthwaite-Eyre, Sir Oliver
Iremonger, T. L.
Price, David (Eastleigh)


Crouch, David
Irvine, Bryant Godman (Rye)
Prior, J. M. L.


Crowder, F. P.
Jenkln, Patrick (Woodford)
Quennell, Miss J. M.


Cunningham, Sir Knox
Jennings, J. c. (Burton)
Ramsden, Rt. Hn. James


Currie, G. B. H.
Johnson Smith, C. (E. Grinstead)
Rawlinson, Rt. Hn. Sir Peter


Dalkeith, Earl of
Johnston, Russell (Inverness)
Rees-Davies, W. R.


Dance, James
Jones, Arthur (Northants, S.)
Renton, Rt. Hn. Sir David


d'Avigdor-Goldsmid, Sir Henry
Jopling, Michael
Ridley, Hn. Nicholas


Dean, Paul (Somerset, N.)
Joseph, Rt. Hn. Sir Keith
Ridsdale, Julian


Deedes, Rt, Hn. W. F. (Ashford)
Kaberry, Sir Donald
Rippon, Rt. Hn. Geoffrey


Digby, Simon Wingfield
Kerby, Capt. Henry
Rodgers, Sir John (Sevenoaks)


Dodds-Parker, Douglas
Kershaw, Anthony
Roots, William


Doughty, Charles
Kimball, Marcus
Rossi, Hugh (Hornsey)


Douglas-Home, Rt. Hn. Sir Alec
King, Evelyn (Dorset, S.)
St. John-Stevas, Norman


du Cann, Rt. Hn. Edward
Kitson, Timothy
Sandys, Rt. Hn. D.


Eden, Sir John
Knight, Mrs. Jill
Scott, Nicholas


Elliot, Capt. Walter (Carshalton)
Lambton, Viscount
Sharples, Richard


Errington, Sir Eric
Lancaster, Col. C. G.
Shaw, Michael (Sc 'b' gh & Whitby)


Eyre, Reginald
Langford-Holt, Sir John
Sinclair, Sir George


Farr, John
Legge-Bourke, Sir Harry
Smith, John


Fisher, Nigel
Lewis, Kenneth (Rutland)
Stainton, Keith


Fletcher-Cooke, Charles
Lloyd, Rt. Hn. Geoffrey (Sut'nC' dfield)
Steel, David (Roxburgh)


Forrest, George
Lloyd, Ian (P'tsm'th, Langstone)
Stodart, Anthony


Fortescue, Tim
Longden, Gilbert
Stoddart-Scott, Col. Sir M. (Ripon)


Foster, Sir John
Loveys, W. H.
Summers, Sir Spencer


Fraser, Rt. Hn. Hugh (St' fford & Stone)
Lubbock, Eric
Talbot, John E.


Galbraith, Hn. T. C.
McAdden, Sir Stephen
Tapsell, Peter


Gibson-Watt, David
MacArthur, Ian
Taylor, Sir Charles (Eastbourne)


Giles, Rear Adm. Morgan
Mackenzie, Alasdair (Ross&Crom'ty)
Taylor, Edward M. (G'gow, Cathcart)


Gilmour, Ian (Norfolk, C.)
Maclean, Sir Fitzroy
Taylor, Frank (Moss Side)


Gilmour, Sir John (Fife, E.)
Macleod, Rt. Hn. Iain
Teeling, Sir William


Glover, Sir Douglas
McMaster, Stanley
Temple, John M.


Glyn, Sir Richard
Macmillan, Maurice (Farnham)
Thatcher, Mrs. Margaret


Godber, Rt. Hn. J. B.
Maddan, Martin
Thorpe, Jeremy


Goodhart, Philip
Maginnis, John E.
Tilney, John


Goodhew, Victor
Marples, Rt. Hn. Ernest
Turton, Rt. Hn. R. H.


Gower, Raymond
Marten, Neil
van Straubenzee, W. R.


Grant, Anthony
Maude, Angus
Vaughan-Morgan, Rt. Hn. Sir John


Grant-Ferris, R.
Maudling, Rt. Hn. Reginald
Vickers, Dame Joan


Gresham Cooke, R.
Maxwell-Hyslop, R, J.
Wainwright, Richard (Colne Valley)


Grieve, Percy
Maydon, Lt.-Cmdr. S. L. C.
Walker, Peter (Worcester)


Griffiths, Eldon (Bury St. Edmunds)
Mills, Peter (Torrington)
Walker-Smith, Rt. Hn. Sir Derek


Grimond, Rt. Hn. J.
Mills, Stratton (Belfast, N.)
Wall, Patrick


Gurden, Harold
Miscampbell, Norman
Walters, Denis


Hall, John (Wycombe)
Mitchell, David (Basingstoke)
Ward, Dame Irene


Hall-Davis, A. G. F.
Monro, Hector
Weatherill, Bernard


Hamilton, Marquess of (Fermanagh)
More, Jasper
Webster, David


Hamilton, Michael (Salisbury)
Morgan, W. G. (Denbigh)
Wells, John (Maidstone)


Harris, Frederic (Croydon, N.W.)
Morrison, Charles (Devizes)
Whitelaw, William


Harris, Reader (Heston)
Mott-Radclyffe, Sir Charles
Wills, Sir Gerald (Bridgwater)


Harrison, Brian (Maldon)
Munro-Lucas-Tooth, Sir Hugh
Wilson, Geoffrey (Truro)


Harrison, Col. Sir Harwood (Eye)
Murton, Oscar
Winstanley, Dr. M. P.


Harvey, Sir Arthur Vere
Nabarro, Sir Gerald
Wood, Rt. Hn. Richard


Harvie Anderson, Miss
Neave, Airey
Woodnutt, Mark


Hastings, Stephen
Nicholls, Sir Harmar
Worsley, Marcus


Hawkins, Paul
Noble, Rt. Hn. Michael
Wylie, N. R.


Hay, John
Nott, John
Younger, Hn, George


Heald, Rt. Hn. Sir Lionel
Onslow, Cranley
TELLERS FOR THE NOES:


Heath, Rt. Hn. Edward
Orr, Capt. L. P. S.
 Mr. Pym and Mr. R. W. Elliott.


Heseltine, Michael
Orr-Ewing, Sir Ian



Bill accordingly read a Second time.


Bill committed to a Committee of the whole House—[Mr. Harper.]


Committee Tomorrow.

SELECTIVE EMPLOYMENT PAYMENTS [MONEY]

Considered in Committee under Standing Order No. 88 (Money Committees).—[Queen's Recommendation signified]

[Sir ERIC FLETCHER in the Chair]

Resolved,
That, for the purposes of any Act of the present Session to provide for payments in certain circumstances in respect of persons in

respect of whom selective employment tax has been paid, it is expedient to authorise—

(a) the payment out of moneys provided by Parliament of any expenses incurred or deemed to have been incurred by any Minister (including the Treasury) other than the Postmaster General which are attributable to any provision of that Act;
(b) the payment into the Post Office Fund out of moneys so provided of amounts equal to any expenses incurred under that Act by the Postmaster General.—[Mr. Gunter.]

Resolution to be reported.

Report to be received Tomorrow.

DOUBLE TAXATION RELIEF (AGREEMENT WITH U.S.A.)

10.15 p.m.

The Financial Secretary to the Treasury (Mr. Niall MacDermot): I beg to move,
That an humble Address be presented to Her Majesty, praying that, on the ratification by the Government of the United States of America of the Supplementary Protocol set out in the Schedule to the Order entitled the Double Taxation Relief (Taxes on Income) (U.S.A.) Order 1966, a draft of which was laid before this House on 2nd May, an Order be made in the form of that Draft
The House is being asked to approve tonight the terms of the Protocol to the Double Taxation Convention between the United Kingdom and the United States which was signed on 17th March last. I think that the House will agree that this is the most important of the new agreements to be negotiated following the introduction of our new taxes, the Capital Gains Tax and the Corporation Tax, last year.
The text of this agreement was published as a White Paper on 22nd March. Some time before that, in view of the widespread public interest in the terms of the agreement, my right hon. Friend took the unusual step of making a Press release announcing the main lines upon which substantial agreement had then been reached, even though the Protocol had not at that time been signed. This was not in any way intended as a mark of disrespect to the House, for it was not possible at that stage to lay the agreement as it had not been signed, and there was widespread interest and concern to know what the terms were. It was for that reason that my right hon. Friend took that course.
I propose just to seek to outline very briefly the main provisions in the Protocol and then await any questions, comments and arguments which may be addressed to me upon it and, if I have the leave of the House to speak again, to reply to the debate.
The original Convention with the United States laid down that the United States tax on dividends, which is a 30 per cent. tax for United States shareholders, when paid by United States corporations to United Kingdom shareholders was not to exceed 5 per cent. in the case of pay-

ments by subsidiaries to parent companies and 15 per cent. in other cases; conversely, that the United Kingdom was not to charge Surtax on dividends paid by United Kingdom companies to residents in the United States. Because of the nature of our previous tax system, there was no other limitation on the right to tax dividends and, of course, we did not seek to do so because we had no separate dividend tax.
In addition, the United Kingdom gave to all United Kingdom shareholders relief not only in respect of the United States withholding tax, but also in respect of the underlying tax, their Corporation Tax, upon the profits out of which the dividends were paid. Quite clearly, these provisions could not stand once we had introduced the Corporation Tax system and had gone over to and adopted the system which the United States and many other industrial countries have.
Under the Convention as it stood, the result would have been that the United States would be restricted to the 15 per cent. and 5 per cent. withholding tax on their dividends, while the United Kingdom would have been free to levy the full standard rate of Income Tax on United Kingdom dividends flowing to the United States on top of the Corporation Tax. Clearly, that would be quite unacceptable to the Americans and, there being a full understanding of the matter, the United States gave formal notice last summer, as they were entitled to do, terminating the provision to limiting their withholding tax on dividends. In consequence, it fell to Her Majesty's Government to negotiate a new Protocol revising the provision relating to the withholding tax.
In short, what the new Protocol provides is that the rate of withholding tax that each country can levy on dividends flowing to the other is limited to 15 per cent., both for portfolio investment and for direct or trade investment. The rate will apply to the United States tax from 1st January of this year and to the United Kingdom Income Tax for the year of assessment 1966–67 onwards.
Each country will give relief for the other country's underlying tax in respect only of dividends from trade investments, which are defined for this purpose as being dividends paid by a company to


another company which controls at least 10 per cent. of the voting power in the paying company. I will just mention one or two of the other principal amendments which are related to the change in our tax system.
First, there are the somewhat complicated provisions relating to interest and royalties. In general the position will continue to be that they will be chargeable to tax only in the country where the recipient is resident and that those payments will be deductible in computing the payer's liability. But certain kinds of interest and royalties, which are treated under United Kingdom law as distributions, a matter that we have been discussing on the Finance Bill in relation to Schedule 11 of last year's Finance Act, will not be deductible in computing the payer's Corporation Tax, and the recipient will then bear United Kingdom tax on the payments of 15 per cent., as if they were dividends.
On the other hand, the Protocol overrides last year's Finance Act provision that interest paid by United Kingdom subsidiaries to United States parents, or royalties paid by a close company to a participator, are to be treated as distributions, with the exception that this does not apply, broadly speaking, where the recipient is a company under United Kingdom control. As a result of our introduction of Capital Gains Tax, it follows that the provisions in the previous Convention relating to the United States capital gains tax will now be reciprocal and apply to our Capital Gains Tax.

Mr. Stratton Mills: Has there been a change in the position compared with the 1946 agreement relating to royalties?

Mr. MacDermot: I have been seeking to outline briefly what the changes have been. I prefaced my remarks by saying that I was seeking to outline what were the other main alterations resulting from the tax changes which we made last year.
The reactions to the publication of this Protocol have been widespread. There has been considerable Press comment, some of it critical and some favourable. The Times, not the New York Times, of 6th January, said that
… the new Convention has, in the context of the Chancellor's overall strategy, been remarkably well devised.

I am sure that that is a comment which will commend itself to the whole House.

10.25 p.m.

Mr. Patrick Jenkin: The Financial Secretary sought to find Press support for his Order. The support was rather thin, because, as he will know, this Protocol has been roundly condemned by virtually every commentator in this country.
It is right that we should devote some time to an examination of the Protocol and some of the consequences which flow from it. Right hon. and hon. Members who see the Financial Secretary and myself once again facing each other across the Table after three days' consideration of the Finance Bill must think that we have a peculiar fascination for matters of this sort. [An HON. MEMBER: "Shift work."] On the night shift and, indeed, on the morning and afternoon shift. Whether this qualifies us for double Selective Employment Tax, I do not know.
The Order is important by any standards. More than half of the overseas income which comes to this country qualifying for double taxation relief comes from the United States. This is the first comprehensive amendment of an existing double taxation Convention under the new dispensation introduced in last year's Finance Act. It will set a pattern for the future—there is little doubt about that—and, therefore, this will have a profound influence on the 60 or 70 other Conventions which will require to be amended.
The main point which I wish to make is that the Order represents a thoroughly dismal bargain which the Government have struck with the American Government. It is dismal from the point of view of the United Kingdom investor in America and of the United Kingdom revenue. Even though the hon. and learned Gentleman may not care much for the former, surely he should care about the latter.
The reasons for the main changes, which the Financial Secretary outlined, stem entirely from the introduction of Corporation Tax last year—the segregation of company tax from dividend tax, the dividend tax representing in the language of double taxation law something in the nature of a withholding tax


but at a rate so high as to be totally unacceptable to any of our trading partners overseas. A rate of 4l¼ per cent. is not a withholding tax which anyone could contemplate. In the United States, the rate for internal withholding tax is 30 per cent., and, by treaty, that is reduced by 15 per cent., which is a much more usual pattern.
The Financial Secretary was right in saying that an Order along these lines was an inevitable consequence of the changes introduced last year. Many of the debates in the House and in the Committee on last year's Bill were directed to the points covered in this Order. We could not possibly expect—it would have been idle to expect—the Government to have been able to negotiate anything substantially different from what we are considering tonight. But it is important briefly to look at the history of the matter because it has some bearing on the merits of the Government's case.
The Chancellor of the Exchequer, in his Budget statement of April, 1965, foreshadowed that his changes in the tax system would require renegotiation of the treaties. Referring to the existing agreements, he said:
We shall, of course, honour these agreements. But we shall seek to renegotiate any agreement which we think unreasonably restricts our right to deduct tax from dividends going to overseas shareholders. This issue is especially important as far as the United States and ourselves are concerned; and we have already had some preliminary talks. These will be continued without delay."—[OFFICIAL REPORT, 6th April, 1965; Vol. 710, c. 268.]
Obviously, the main point—I am sure that the House appreciates this—is that the United Kingdom underlying tax would be only 40 per cent., or conceivably then 35 per cent., whereas the United States rate is 48 per cent.—substantially higher. Any arrangement which did not take account of the difference between those rates of underlying tax was bound to represent a loss to the United Kingdom taxpayer and to the Revenue.
At this stage, there entered on the scene a very formidable character. I refer to the United States Assistant Treasury Secretary, Mr. Stanley S. Surrey. On 25th June, Mr. Surrey met the Chairman of the Board of Inland Revenue, but apparently these discussions did not get

very far, because five days later, as the Financial Secretary said, the American Government terminated the dividend provision, Article VI of the former Convention, as they were perfectly entitled to do under paragraph (3) of that Article. The effect, of course, on investors in this country was to withdraw the 15 per cent. rate of withholding tax and to substitute the 30 per cent., and in those circumstances the Government felt that they needed to press on with their negotiations.
Then, on the 2nd August, the hon. Member for Faversham (Mr. Boston) put a Question to the Chancellor, to which he received a Written Answer. At column 247 he asked the Chancellor
what United Kingdom tax will be borne after 5th April next by overseas residents on dividends from the United Kingdom.
The Chancellor then made a short statement.
We shall observe existing double taxation agreements, pending renegotiation where this is desirable. To deal with the case where a double taxation agreement is silent about the liability to Income Tax on dividends going overseas"—
and, if I may pause there, this would by then be the American case if the treaty had not been renegotiated by 1st January—
I propose to introduce legislation in next year's Finance Bill to say that, pending renegotiation of these agreements, the liability of the overseas shareholders concerned shall not exceed the rate of tax which the other country could impose in the converse case under the agreement."—[OFFICIAL REPORT, 2nd August, 1965, Vol. 717, c. 247–8.]
That is the so-called mirror image relief, as it has come to be known.
The House will recollect—that is, those who were here at 3.30 a.m. on Wednesday, 22nd June, last—that we then considered Clause 29 of the Finance Bill, and the Schedule which went with it, where this mirror relief was spelled out in the case of a number of Conventions specified in the Schedule. It raised difficult questions to which I shall come back later, and I hope that the Financial Secretary may be able to deal with that. But for the moment I will press on with the history of the matter.
Then on Wednesday, 5th January, came the Inland Revenue announcement, and let me say at once that I do not criticise that at all as a matter of procedure. The Financial Secretary was


absolutely right. Interest in these negotiations was intense, speculation was rife, and it was quite right that as soon as the main outlines of this agreement were known they should have been published. I do not at all endorse the criticism which was made in some quarters, that the matter should have waited until the order could have been published in its full form. I do not think that would have been right.
A new agreement had been reached in outline. It embodied the withdrawal of relief on portfolio investment and fixed a figure of 10 per cent. for relief on direct investment. That abolished a quite useful little provision in the previous agreement, that if a company held 95 per cent. of the equity the withholding tax was only at 5 per cent. It so happens that, with Income Tax at the rate of 8s. 3d. and Profits Tax at 15 per cent., that did not make any difference, because the American tax was still marginally higher than the U.K. tax and, therefore, the credit was fully exhausted.
But, nevertheless, at slightly lower levels of U.K. tax, it did represent a useful addition and, of course, it did contain the main provision of 15 per cent. withholding tax on both. There was a reciprocal arrangement for withholding tax both on American investment and on British investment, and this is the real nub of the case. That was the real issue around which the battle raged—and make no mistake it was a battle, and, make no mistake, that battle was lost.
In September, 1965, there was an article in the Accountant headed "Tax Treaties—Another British Triumph?", and after the announcement in the Press to which I have referred the Economist published an article under the heading "America Wins". The fact of the matter is that the Government, having introduced the new taxes in the 1965 Finance Bill, and having made the announcements which they did about the withholding of relief on underlying tax, and so on, found themselves going into these negotiations with this formidable banker, Mr. Surrey, with really no bargaining power at all.
Their only hope was to try to persuade the U.S. Revenue to allow the United Kingdom to have a higher rate of with-

holding tax than the 15 per cent., in order to offset the difference between the 40 per cent. Corporation Tax and the 48 per cent. United States tax on the underlying tax on the company. This was always a forlorn hope. The O.E.C.D. Model Convention recommended a reciprocal 15 per cent. rate of withholding tax. It was obviously mirror relief to which the Chancellor had referred earlier in his reply.
Mr. Surrey himself, who was described in one article as a "very tough nut indeed", has very strong views—strong views, I may say, which ought to have been well known to Her Majesty's Government as soon as they came into office and were contemplating these tax changes. They ought to have known what they were up against. He has never made any secret of his views. He is regarded as a very considerable world authority in this field of double taxation, and he has enforced his views in a number of different directions notably in the reform of the United States internal revenue code in 1962.
In September, 1964, Mr. Surrey read a paper to the Tax Executives Institute of Montreal entitled "The U.S. tax system and the international tax relationships". His own philosophy and the philosophy of the Government which he represented in these negotiations was plainly set out, and I should like to quote it, because this is the real point. There could have been no excuse for the Government not knowing what the American Government's point was.
Mr. Surrey said, in Montreal:
Whatever the cause of the issue, the United States has found itself in the position of being asked to agree to a treaty provision under which our withholding rate on dividends to a particular country would be less than the rate levied by that country on dividends moving to the United States. We have in these cases—in order to protect our investors from an increased level of foreign taxation and to protect the United States from revenue loss under the foreign tax credit—taken the firm position"—
and these are the crucial words—
that international withholding rates should be reciprocal and hence we cannot agree to an upward adjustment by other countries to accommodate to their internal tax policies.
In the face of that absolutely categorical statement of what American policy was—and anybody knowing Mr. Surrey's reputation could have had little doubt


that they would be unlikely to be shifted from it—must have realised, as they were introducing the new system of Corporation Tax early in 1965, that the chances of negotiating anything satisfactory with the Americans on the basis of our tax was going to be precisely nil. There was no chance whatever. So, indeed, it has turned out.
In the Economist article to which I referred a moment ago we find this following:
Last autumn it became clear that the renegotiation of the double taxation treaty with the United States had turned into a tug of war between Washington and Whitehall. The game is now over. Agreement in principle has been reached. America has won.
This has been stated by virtually every commentator who has written about this, and it is right that I should explain on the figures why this principle was transcendentally clear. It is clear from both aspects to which I have referred—from the point of view of the United Kingdom investor and the net income after withholding tax, and also from the point of view of the yield to the United Kingdom revenue.
I should like to quote the figures. Take a United Kingdom company investing in the United States, and assume net profit before tax in the United States of 100. United States tax is 48, leaving gross distribution of 52. Withholding tax at 15 per cent. is 7·8. Net dividend received in the United Kingdom is 44·2. United Kingdom tax on 100 is 56·25, against which one sets the American tax which has been paid of 55·80, leaving a tiny fraction of United Kingdom tax payable, but the important point is that net dividend after both taxes is 43·75. This is on the old system.
Curiously, in the case of a United States company investing in the United Kingdom on the old system, we get exactly the same figure. Assume net profits before tax to be 100. United Kingdom tax before profits is 56·25. Gross distribution representing the net dividend received in the United States is 43·75—exactly the same.
Now let us consider the new position, with a U.K. company investing in the United States, again assuming profits of 100. The figures are: United States tax, 48; gross distribution, 52; withholding

tax, 15 per cent., 7·8; net dividend, 44·2. United Kingdom Corporation Tax on the 100–40, less the credit, 55·8, and there is the measure of the difference between the sums which were allowed for credit before and now, resulting in a nil U.K. tax and the dividend after both taxes 44·2. I concede that for the transitional period there is some measure for overspill, but the Convention is intended to last for some time, long after the overspill provisions have been exhausted.
We then come—and this is the point—to a United States company investing in this country. Under the new treaty, with profits of 100, U.K. Corporation Tax, 40, leaving 60. U.K. Income Tax withheld at 15 per cent., the new 15 per cent. withholding tax, 9, leaving a net dividend in the United States of 51. Therefore, under the old system, the British company investing in the United States received 49·4 of the American company's profits, and the American company in the United Kingdom received 43·75. Now, the United Kingdom company's figure is 44·2, and the American company's is 51.
Under the old dispensation there was a balance favourable to this country, a balance favourable to the British investor, of 5·65. Under the new dispensation, the balance is unfavourable to this country—6·8 per cent. There is thus a swing of about 12 points, and this is why I say that from the point of view of the investor it represents a very dismal bargain indeed.
Turning to the yield to the U.K. revenue, under the old system, with a U.K. company investing in the United States, the yield to the American revenue was 48 underlying tax, 7·8 withholding tax, making 55·8. For an American company investing in the United Kingdom, under the old dispensation the tax yield to the U.K. revenue was 56·25, almost identical figures. Under the new system, the yield to the American revenue is the same, 55·8, but the yield to the United Kingdom revenue for investment by an American company in Britain is only 40 per cent. Corporation Tax and the 9 points withholding tax (the 15 per cent. withholding tax) and the result is 49 compared with nearly 56. Whereas, under the old dispensation, the yield was virtually identical, now the yield is different by about 7 points.
This is why the Economist, in weighing up the consequences of this Order, wrote that it represented
a tax present to the Americans and thus a transfer of current dollars from the Bank of England to the Federal Reserve.
I am glad that the First Secretary has come into the Chamber, because I think that he will be interested in the Order when I tell him that in the words of the Economist this represents
a transfer of current dollars from the Bank of England to the Federal Reserve.
As a result of this Order, Britain is making a direct present to the American Federal Reserve. It is the same as if we had a gold mine in this country and were digging up the gold and sending it overseas and piling it up in Fort Knox; and just about as effective and futile as that.
The first question which I should like the Financial Secretary to answer is: what is the Government's estimate of the loss to the reserves as a result of this Order? What will be the effect on the balance of payments of the differential tax system—I would be grateful if the hon. and learned Gentleman could confine himself to that aspect of it—now embodied in the Order? It reaches serious dimensions, running into millions of pounds a year. The House and the country are entitled to know what it is.
I turn to the Protocol itself. The Financial Secretary will remember that when we debated the Double Taxation Relief (Taxes on Income) (Sweden) Order, 1966, he said:
I am always fascinated by these discussions on Double Taxation Relief Orders"—
It is a good thing that somebody is—
because I am never asked any questions which in any way relate to the contents of the Orders. No doubt this is because of their extremely lucid language."—[OFFICIAL REPORT, 26th May, 1966; Vol 729, c. 881.]
I assure him that he will not be disappointed this time, because I have a number of questions for him.
The first relates to what is known in tax parlance as the "force of attraction", that is to say the concept that if one has a permanent establishment in one territory, although one is a resident of the other, and one also has investments in that territory, the income from the investments must be treated together with the

profits from the permanent establishment provided that they are sufficiently closely linked.
We seem to have in this Order an entirely new phrase which I have not come across before. The phrase, "effectively connected with", is used in Articles 4 and 5. This is entirely different from the phrase in the old Order. Are there any precedents for that phrase, either in Orders affecting English tax or in any others, and, if so, how will it be interpreted? How will the interpretation differ from the fairly well-established interpretation under the existing Convention?
The Order contains a number of other phrases having a roughly comparable meaning. Article (3) in paragraph (1) of the new Article III refers to profits
directly or indirectly attributable to the permanent establishment
What is the difference between "effectively connected with" and "directly or indirectly attributable" to the permanent establishment? In Article 3, in paragraph (3) of the new Article III dealing with expenses, a third expression, "reasonably connected with", is used. There must be some reason for this different language, and the House would find it very helpful if the Financial Secretary gave some indication of that difference in meaning.
I now take up the question of royalties, which my hon. Friend the Member for Belfast, North (Mr. Stratton Mills) put to the Financial Secretary. It is not clear from the terms of the Order what is the change that is to take place. The Finance Act, 1965, provided for the deduction of tax from royalties paid overseas. Yet it appears from the Order that the royalties are to be taxed in the country of the recipient and to be treated as an expense incurred in the country where they are paid.
What is the position under the Convention? I do not understand it. The liability is clear in the terms which I have just stated, but is the royalty to be paid gross or under deduction of tax, with some form of repayment claimed? It will be a very retrograde step if it is the latter. In the past it has been possible, where royalties have been paid by a British company to an American company, to get a dispensation to pay them gross, and this has been extremely useful from both ends.
The question of payment of dividends was the subject of a Question, again with a Written Answer, which was asked by the hon. Member for Hitchin (Mrs. Shirley Williams). On 12th November, the hon. Lady asked the Chancellor of the Exchequer
what rate of tax should be deducted by United Kingdom companies from dividends paid after 5th April next to shareholders not resident in the United Kingdom".
The Question obviously had behind it the suggestion that there would be different rates in different countries. The Chancellor replied:
Income Tax should be deducted from such dividends at the full standard rate. Any relief which may be due to a non-resident shareholder by virtue of provisions contained in a double taxation agreement will be given by repayment"—[OFFICIAL REPORT, 12th November, 1965; Vol. 720, c. 13–14.]
For people who are interested in the flow of international investment, that was a matter of some dismay. They had hoped that dividends would be paid under deduction only of the withholding tax. In the case of United Kingdom companies, it was greeted with relief because their imagination boggled at the idea of having to do countless different calculations relating to shareholders who were resident overseas, possibly deducting withholding taxes at different rates and, worst of all, having to keep up with the changes of residence of all their overseas-resident shareholders.
In Article 4 of the Order, however, we have the figure of 15 per cent. with reciprocity on both sides, and it appears from the Convention that, apart from anything that the Chancellor has said, it is the intention that the tax should be deducted at the withholding rate only. The Government should not be under any illusion about the problem that this will create for companies with any substantial number of overseas shareholders. In one newspaper it was suggested that this would result in registrars qualifying for salaries equivalent to that of the chairman of the company because of the complications with which they must deal.

Mr. Harold Lever: But American companies do this all the time.

Mr. Jenkin: That is a matter with which, no doubt, the hon. Member will deal.
Representations have been made to me from a number of sources. The way that British companies have organised their offices hitherto has been with deduction of tax at a standard rate for everybody. This now represents a considerable upheaval. On the other hand, if it is still the intention that all these claims should be met by repayment claims and that tax should be deducted at the standard rate, again the problem looks like being intense. An article in the Accountant contained the following sentence:
The Inland Revenue staff handling the claims will presumably be housed in tents in Hyde Park",
so great would be the administrative problem which the Inland Revenue would face in those circumstances.
I understand that talks are taking place with various institutions and representative bodies to try to find a way round what, on the face of it, appears to be an appalling dilemma. Will this be a dreadful administrative problem for the companies, or will it be yet another major administrative problem for the Inland Revenue? The House will be grateful to hear something about this from the Financial Secretary.
I come, finally, to a curious Article, Article 13, which contains a new Article XIX A, which, I understand, is intended to cover the position of any tax which may have been overdeducted in the interim period. The first sentence states:
Each of the Contracting Parties will endeavour to collect on behalf of the other Contracting Party, such amounts as may be necessary to ensure that relief granted by the present Convention from taxation imposed by such other Contracting Party does not enure to the benefit of persons not entitled thereto.
That appears to be an astonishing vague and sweeping proposition. The House will be grateful if the Financial Secretary will explain how the problem arises and exactly how that obligation therein contained will work. Will there be any retrospective assessments to recoup the tax that, apparently, should not have been allowed? On whom will those retrospective assessments be made?
Those are my detailed points. I hope that they will satisfy the obvious hunger


expressed by the Financial Secretary the last time we discussed these matters.
What really matters is the overall economic result. The purpose of double taxation relief is to ease the flow of international investment. Great strides have been made in this direction in the last 20 to 25 years. Anything which increases the double taxation of income which arises in one country and is remitted to another must represent a retrograde step. It means that incomes are being taxed twice—first, in the country where the tax arises and, secondly, in the country where the tax is remitted.
If the obvious effects of the shift in emphasis that I described a few moments ago is that British investment in America will be much less attractive—and the Chancellor has made no secret of the fact that that is one of the major purposes of this Order—American investment in Britain will become a good deal more attractive. My mind harks back to the numerous occasions when hon. and right hon. Gentlemen opposite, when in opposition, used to react violently to any suggestion of further American investment in this country. I remember the Rootes-Chrysler affair, and the fuss made about it, and the way in which some of my right hon. Friends at the Dispatch Box had to defend that example of American investment in this country. The present Prime Minister tried to draw a distinction between what he called new investment, bringing new "know-how" to Britain and, on the other hand, a mere take-over.
The Financial Secretary appreciates that there is absolutely nothing in this Convention which draws any distinction whatever between the two forms of investment. One can confidently expect new companies to set up with new "know-how," particularly in development districts, and we welcome this as a development but do we want to encourage a new flow of take-over bids for British companies? There is nothing in the Convention that draws any distinction between the two forms of investment.
There is no compensatory increase for the attraction of investment in the United States by British companies, and the re-

sult will be that investment will be encouraged one way. That is not in the interest of a healthy world balance of trade, or a movement of capital, and it is not in the long-term interests of this country. The Order represents yet one more shabby sell-out by the Government under pressure, just like the export rebate for E.F.T.A. and the F111A fighters from America. Now there is this Double Taxation Relief Order. The Government are bad negotiators. They have struck, and will no doubt continue to go on striking, a series of bad bargains.

10.58 p.m.

Mr. Harold Lever: I do not know whether I require the leave of the House to speak again, Mr. Speaker, since I made an observation during the speech of the hon. Member for Wanstead and Woodford (Mr. Patrick Jenkin).

Mr. Speaker: The hon. Member has not exhausted his right to speak by doing so.

Mr. Lever: I am obliged, Mr. Speaker. I have always been in some doubt about how I stood in a case of that kind.
We have made a double taxation treaty which has been subjected to some oratory and some admirably detailed criticism by the hon. Member for Wanstead and Woodford. It is the duty of an Opposition to oppose, but it is not their duty always to carp. I wonder whether the two functions may not sometimes be misunderstood by those who criticise from the benches opposite.
I want to refer to the general proposition. The hon. Member said, rightly, that this Convention was absolutely inevitable after the enactment of the Corporation Tax last year. But he did not descend to details and tell us why it became absolutely inevitable. It did so because it was known to us that the American Government would not allow a greater withholding tax in a tax treaty with Britain than the American Government themselves exacted from dividends received by British subjects, and it followed that if we were to have parity with the Americans in investment across the two frontiers the only way to achieve it was to institute a Corporation Tax


system, and have a 40 per cent. flat Corporation Tax and thereafter a 15 per cent. withholding tax.
The hon. Member for Wanstead and Woodford is making gestures. I will give way if he has something audible to say in reply to the simple proposition I am making. The fact remains that once a Corporation Tax was brought into being in this country—and the hon. Gentleman conceded this—it was inevitable that we could not have got a better bargain than we got, except by raising the Corporation Tax to the level of the American Corporation Tax. I see the hon. Gentleman waving his arms in the air and grimacing. I take it, however, since he does not intervene, that he does not dissent from the accuracy of my argument.
The hon. Member for Wanstead and Woodford warned us, so he said, that something like this would happen. But warnings are not enough. Apparently the only way we could be saved from this disastrous victory which the Americans scored over us—which is the way the hon. Gentleman looks at it—would have been for us not to have had a Corporation Tax at all. [HON. MEMBERS: "Hear, hear."] What does that mean? Hon. Gentlemen opposite are making noises. I have offered to give way to any one of them who is prepared to proclaim, on behalf of the Opposition, that it is the policy of the Opposition that there should be no Corporation Tax.

Mr. Speaker: Order. If an hon. Member responded to that challenge he would be out of order.

Mr. Lever: With respect, Mr. Speaker, I should have thought that this was relevant to the argument that one way we could have got a better bargain would have been for us not to have a Corporation Tax at all.
But after all, is the British taxation system to revolve around the question of whether some marginal tax advantage or disadvantage exists for us in relation at the American tax system on our investments? In any case, of the number of stupid things the Opposition have done since we came to power, hon Gentlemen opposite have not so far gone so far as to say that we should change the whole system to gain an advantage, a

highly marginal advantage, over the Americans.
Hon. Gentlemen opposite are, therefore, committed to the Corporation Tax and they have not promised us relief from this mischief, if mischief it be. They have not said that they will reverse what my right hon. Friends have so "incompetently, stupidly, and neglectfully negotiated." Of course, the only way to get round this difficulty would be for us to put the Corporation Tax up to 50 per cent., the rate which the Americans enjoy. I want to hear from the Opposition. Will they reverse this so-called bad bargain, increase Corporation Tax to 50 per cent. and so secure a draw with the Americans?

Mr. Speaker: Order. We cannot debate either whether the Corporation Tax should or should not exist, or should be increased to the amount mentioned by the hon. Member.

Mr. Lever: With respect, Mr. Speaker, I would not be arguing this point if it were not directly relevant to the only argument which has been adduced from the benches opposite tonight, which is that the Government have driven a bad bargain.
The hon. Member for Wanstead and Woodford said that it was absolutely inevitable that my right hon. Friends would have to drive this bargain if we had a Corporation Tax at 40 per cent. I am pointing out that the only way by which we could have driven a better bargain would have been for us to have had a 50 per cent. Corporation Tax. I am, therefore, asking the Opposition whether they would rather we had a better bargain with the Americans, but with the Corporation Tax at 50 per cent. I assure hon. Gentlemen opposite that we do not have an unreluctant Chancellor of the Exchequer. If they insist that we need to increase the Corporation Tax to 50 per cent. I dare say that my right hon. Friend would be open to representations from such quarters as hon. Gentlemen opposite.
We must remember what has been said about this bargain, which hon. Gentlemen opposite claim is to be deplored, by the learned Press and economists of all kinds, not Hungarian in this case. What exactly is the defeat we have suffered, the humiliation, drain of dollars and presentation


of gold to the Americans? What is it that should make us adjust our Corporation Tax rate from 40 per cent. to 50 per cent.?

Mr. Srratton Mills: Is the hon. Gentleman aware that there is another form of Corporation Tax in use in certain other countries which allows a number of setoffs as against dividends?

Mr. Lever: But the fact remains that with Corporation Tax as we have it, the only reason why the Americans got a better bargain than we got, taxwise, is because our rate is 40 per cent. That is the argument of hon. Gentlemen opposite. It follows that the only remedy would be to increase it to 50 per cent. I am in favour of low taxation, but the inference of what has been said from the benches opposite is that the Opposition stand for victory and a 50 per cent. Corporation Tax. I view this with some alarm, bearing in mind my personal tax liabilities. I am very relieved that the Chancellor is not in the Chamber to hear such propositions.

Mr. John Peyton: If we are debating the merits of one American tax against one British tax, the debate might be widened. Would it not be fair for the hon. Gentleman to put his question slightly differently, instead of putting one rate of one tax in one country against the other? I would swap the whole American system for the whole of ours.

Mr. Lever: If I pursued that, not only should I be out of order but it would be irrelevant to this argument.
I am not saying that the British tax system is better than the American tax system or worse. I am saying that the Opposition Front Bench spokesman said, and rightly said, in effect, that once we have a Corporation Tax, once we have it at 40 per cent., and once the Americans are absolutely determined that they will not negotiate a treaty which gives us the right to withhold more than 15 per cent., which is all that they withhold, all this has the stated effect on the amount of tax we can get from an American investor. It inevitably follows that the only remedy is to abolish the Corporation Tax or increase it to 50 per cent. Either of those choices would be a great victory and would result in the relief of all those

losses of which we have heard so much tonight. Neither makes sense.
I will put forward only one thought in the hope that my right hon. Friend the Chancellor will not be tempted to increase the Corporation Tax to 50 per cent. and turn a defeat into a victory satisfactory to the Tory Party. I am rather relieved by what is thought to be a bad bargain. I hope that not only shall we not have a 50 per cent. Corporation Tax—

Mr. Speaker: Order. The hon. Gentleman is a Chairman of Committees and knows what is in order. He cannot discuss any further whether the Corporation Tax should be increased.

Mr. Lever: I bow to your Ruling, Mr. Speaker. I assure you, Sir, that I was not consciously out of order. I remain respectfully, but obviously, in view of your Ruling, wrongly, convinced that what I was saying was relevant to what we are discussing tonight. This is a very complex matter. I shall not press my argument. I assure you that there was not any conscious intention on my part to trespass on the rules of order.
One of the consequences of the bargain which has been struck is, as the hon. Member for Wanstead and Woodford rightly said, that it encourages American investment in this country. The hon. Gentleman has not dared to come out openly and say that he is opposed to the concept of encouraging American investment in this country. I should have thought that it was a splendid thing. What the hon. Gentleman is trying to do is obliquely, without sneering, to hint at a sneer at what has been done.
The hon. Gentleman stated that when the Labour Party was in opposition some of the less responsible of us, or some Members who have views differing from my own, opposed American investment in this country. I want to know whether the hon. Gentleman opposes it. Opposition Members can afford to be a little more reckless than when they are in government. It has been said that power corrupts. With the Tory Party it is absence of power that corrupts. It is then that Tory Members lose their sense of responsibility. Do they suggest that it is a bad thing that one result of the treaty is that we encourage American investment in this country? Why has the


hon. Gentleman picked holes in a perfectly reasonable treaty? Indeed, it was the only treaty we could negotiate. It was this one or no treaty, as the hon. Gentleman himself admitted. This is a treaty which encourages American investment, with all the capital and "know-how" which will result from that. Why does the hon. Gentleman oppose this process?
Far from digging a hole in the balance of payments, this will do the balance of payments a power of good. I believe in investment in this country by American firms. It brings capital and "know-how" to this country. It should be welcomed by all forward-looking people. A glance round at American companies that are already in this country shows how much we have gained from American investment in this country. It far outweighs, through the creation of wealth, employment and technical knowledge, the dividends going back to the United States. Their attitude makes me think that lack of power has corrupted the Opposition.
Now I come to the position of the British investor. He is no worse off than before so far as the American Government are concerned. He is no worse off because, by act of policy, the Chancellor has decided, in view of the balance of payments position, that it is necessary to have an additional tax payable and does not give the relief he might have given for the American tax which has been deducted.
The main thing is that, from the balance of payments point of view, we get out of America precisely what we got before the treaty was negotiated and what we have always got and about which no one complained. Any additional tax the British investor in America pays is British and not American tax. I would be out of order if I enlarged on that matter of policy.
What is in order and relevant is whether the Americans take any more from the British investor than they have always done. The answer to that is, "No." Discussion of what I believe to be the finest investment we have ever made—the dollar portfolio investment in America—at least in the post-war period, is a matter for another occasion, and

there are differences of opinion on that between the Government and myself.
As for this treaty, I am glad that the Chancellor concluded that the sooner this meaningless, useless friction was ended the better and that the only treaty that could be signed was signed. I am sure that many advantages will flow from it to the country as a whole.

11.12 p.m.

Mr. Peter Bessell: In accordance with custom I must declare that I have business interests in the United States. I was glad that the hon. Member for Wanstead and Woodford (Mr. Patrick Jenkin) agreed with the Financial Secretary to the Treasury that it was necessary to make a preliminary announcement before the Order was laid before the House in view of the speculation both on this side of the Atlantic and in America on the terms of the treaty and the effects this was having upon Anglo-American relations in terms of financial agreements and business investment.
The history of this matter has been stated fully by the hon. Member for Wanstead and Woodford and there would be no point in my covering the same ground which he covered admirably. There will be a considerable amount of criticism, as there has already been, from financial newspapers and other interests of the terms of the treaty. But that criticism comes in the main from people who do not like the idea that the American investor gets an advantage which, apparently, the British investor does not.
I do not think that any of the criticism which has been levelled against the agreement has any other basis. I take the view expressed by the hon. Memberfor Manchester, Cheetham (Mr. Harold Lever)—that the main effect of this treaty will be to encourage further American investment here. I have always believed, as he does, that this is good for Britain both in the long term and the short term.
It is good in the short term because it provides dollar investment at a time when we need dollars and it is good in the long term because of the technical advantages which are obtained, the additional forms of employment which are provided and the fact that it enables this country to maintain a level of technical advance comparable to that of the United States.
Indeed, I was surprised, as was the hon. Member for Cheetham, that the hon. Member for Wanstead and Woodford should have sought to make capital out of the issue of the Chrysler-Rootes agreement, which his own Government and party supported to the full and which, indeed, was opposed by some members of the present Government.
But if the Labour Party is learning as time goes by, we should applaud this. We should not decry it or try to make political capital out of it if it has reached the conclusion which I presume the hon. Gentleman has reached, that American investment in this country is good. I think that we should like to hear from the hon. Gentleman on this, as the hon. Member for Cheetham said. I repeat that if the Labour Party has reached the conclusion that American investment in this country is valuable, we should applaud the fact. I shall be glad to hear from the hon. Gentleman whether he now takes that view or whether, from the Opposition benches, he feels that it is a bad thing.

Mr. Patrick Jenkin: I do not know whether, before the debate, the hon. Gentleman read, as I have done, the exchanges that took place in the House when my right hon. Friend the Member for Barnet (Mr. Maudling) made a short statement announcing the Government's attitude to the deal. If he has, he will know that there was expressed on behalf of the Conservative Party complete satisfaction that, with the safeguards which the Bank of England had, that was a bargain which was wholly in the interests of this country. My right hon. Friend was attacked by any number of Labour Members. They did not agree with the hon. Member for Manchester, Cheetham (Mr. Harold Lever).

Mr. Bessell: Of course I have read the exchanges that took place, not immediately before this debate but at the time, because I had a great personal interest in them. This does not in any way lessen my point, and the hon. Gentleman has not answered my question, which was whether the Conservative Party is now saying that we do not want American investment in this country or whether it is saying that it still maintains the position which it adopted when in

Government, which I think was a very responsible position. I hope that the Conservatives have not become as irresponsible as the hon. Member for Cheetham has suggested.
We could debate the agreement at great length, but it would be pointless to do so. As the hon. Member for Wanstead and Woodford has said, and as the Financial Secretary has implied, the agreement was inevitable from the moment that the 1965 Finance Act went on the Statute Book. We knew then. I well recall the long debates that we had on this subject in Committee last year. We always knew that any agreement that was reached would be on these lines.
It was a pity that there was speculation towards the end of last year both here and in Washington to the effect that it might be a very different agreement from the one which has now appeared. I do not like certain aspects of it. I am a little alarmed about the position of patent holders, for instance, who obtain royalties from the United States. The position for them is certainly less advantageous than it was under the 1946 agreement. I am concerned that there should be any agreement which gives a favourable position to the American investor by comparison with the British investor's position in the United States.
The main points are, first, that the agreement in this form was inevitable, and, therefore, I do not think that there is a great deal of point in debating it at length, and, secondly, that the tendency will be to encourage American investment in this country at a time when I believe this should go forward unimpaired and unhampered. It is rather curious that the United States should have accepted an agreement of this kind at this time.
It has been said that this is a "sellout" by the British Government to the United States. In view of the attitude of the United States Treasury to overseas investment at the moment, in view of the ways in which it is attempting to discourage that kind of investment here and elsewhere, it might even be said that the British Government have scored a minor triumph in obtaining an agreement of this sort which will encourage Americans to invest here instead of discouraging them, which I am sure would be the wish of the U.S. Treasury.
I do not think that there is any more that need be said on the matter. On behalf of my party, I give a limited but nevertheless real welcome to the agreement.

11.20 p.m.

Mr. J. Bruce-Gardyne: The agreement has been described by the hon. Member for Manchester, Cheetham (Mr. Harold Lever) as having marginal disadvantages. The hon. Member for Bodmin (Mr. Bessell) referred to it as a minor triumph. In March, my right hon. Friend the Member for Stafford and Stone (Mr. Hugh Fraser) suggested to the Chancellor that the net cost of the agreement across the exchanges would be £10 million, and the Chancellor seemed unable to deny that figure. This is the first time that an agreement which will cost us £10 million has been described as a minor triumph.
The hon. Members for Cheetham and Bodmin have said that the agreement was inevitable. I agree that my hon. Friend the Member for Wanstead and Woodford (Mr. Patrick Jenkin) was prepared, with considerable reservations, to accept an element of inevitability about it. Personally, I should have preferred that the changes of taxation which have made it inevitable had not been made.
In any case, I wonder whether the agreement was quite as inevitable as we have been led to understand. It was no doubt inevitable if we accept that the United States Government were entitled to say that they were not prepared to make any agreement in which the withholding of tax on the other side was higher than the American withholding. This statement was made by Mr. Surrey, and it is a statement which the hon. Member for Bodmin has assumed that we must accept.

Mr. Harold Lever: It is not fair to criticise the Government for treating American policy as inevitable when the hon. Member for Wanstead and Woodford (Mr. Patrick Jenkin) said that it was plain to everybody that in no circumstances would the American Government break from their universal rule not to allow a greater withholding of tax to any country than the American withholding tax from that country.

Mr. Bruce-Gardyne: It does not seem to me that the British Government

tried very hard. We must investigate the motives which lie behind this extraordinary agreement. My hon. Friend the Member for Wanstead and Woodford described it as a dismal agreement. My first feeling on reading the terms of the agreement was that the fact that the Government had negotiated such an agreement was in some way connected with the abject dependence on the financial support of the United States Government to which the British Government have been reduced. On the whole, I reject this explanation.
I agree with the hon. Member for Bodmin. This agreement seems to fly in the face of the American Government's desire to improve the American balance of private capital movement. But I do not agree that the fact that it flies in the face of this aspect of American policy is necessarily a triumph for the British Government.

Mr. Bessell: Would the hon. Gentleman answer my question: is he and is the Conservative Party in favour of or opposed to American investment in this country? This is the crux of the matter. His hon. Friend the Member for Wanstead and Woodford (Mr. Patrick Jenkin) did not give me a straight answer.

Mr. Bruce-Gardyne: If the hon. Member will allow me to make my own speech, I will come to that point in a moment.
What other explanation is there for this agreement? I cannot help feeling it might have something to do with a calculation in the National Plan, that the net outflow of capital of £137 million in 1965 should be transformed to a net inflow of £75 million by 1970. There is a most interesting and percipient article in the Financial Times this morning by Mr. Samuel Brittan which referred to this. In it, Mr. Brittan said that to achieve the £75 million inflow solely by cutting British investment abroad would involve reducing the gross outflow to £100 million or one-third of the average of recent years.
Such a reduction is inconceivable without doing permanent damage to Britain's commercial interests and export prospects.
I would not necessarily acquit Her Majesty's Government of doing such


damage. However, Mr. Brittan says that a big rise in inward flow of investment will, in practice, be necessary if anything like a net inflow of £75 million is to be achieved by 1970. It seems quite clear that this is the motivation behind this agreement. It may be part of the motivation behind the taxation change in last year's Finance Act.
But I suggest two grave objections to this course of action. First, it amounts to mortgaging the future because the Chancellor of the Exchequer is too feeble to tackle the present. Investment in Britain has to be serviced. My hon. Friend the Member for Wanstead and Woodford drew attention to this consequence of the agreement, that it was bound to encourage United States takeovers of British firms and industry. The Chancellor may have had it in mind to encourage, say, a take-over of B.M.C. to help finance the first tranche of repayment of the I.M.F. loans next year. This is a very short-sighted policy because the encouragement of large-scale American take-over bids will ensure that in years to come, when the Chancellor is no more than an unhappy memory, our current account balance will be floating into the "red" as the interest payments build up.
The second objection to this odd bargain is even more serious. This country already contains the largest concentration of American investment in Western Europe. In Scotland, particularly, many of the most advanced manufacturing sectors are almost monopolised by American firms and we have reason to be grateful to them. They have introduced employment opportunities and new skills and management techniques which were badly needed, but I suggest that this process can be carried too far and in certain industries, it may already have gone far enough.
I draw the attention of the Financial Secretary to an article in Business Week of 7th May, 1966, in which it was said:
In fact, the new Headquarters companies of U.S. companies in Europe may go a long way toward permitting more use of Americans in top management abroad. They will provide U.S. parent companies with a new base in Europe to which they can send U.S. managers, without altering the local image of their individual subsidiaries.

This is the process that we shall see and in so far as it is encouraged by this agreement it will only encourage the brain drain of management and technological abilities across the United States by encouraging Americanisation of management. Again, I suggest to the Financial Secretary—and this is a point which I do not believe he should take so humorously—

Mr. MacDermot: If the hon. Gentleman is complaining about my laughter, I was merely reflecting upon the remarks which he has just made. Surely, if Americans are to invest capital in this country, the first thing that they will see to is that there is efficient management here managing the use of that capital.

Mr. Bruce-Gardyne: I am sorry, but in that case the Financial Secretary cannot have listened to the quotation which I made. The point of the quotation was that there will, inevitably, be a tendency for American management to be put in, for very understandable reasons, in the case of industries which have been taken over under terms and circumstances which have been encouraged by this agreement.
I was about to say that there is also the Canadian example to beware of. Admittedly, we are still a very long way from anything like the percentage of American ownership of British industry which Canada has experienced. But I would remind the Financial Secretary that in 1962 the Canadian dollar was devalued very largely as a result of the movement of funds by Canadian subsidiaries to American firms south across the border. That was a movement on a huge scale, which the Canadian Government were totally unable to control. This, I should have thought, was a risk which the Financial Secretary might be wise to ponder over.
Last, but not least, there is the impact of this agreement on our hopes of entry into the Common Market, and I suggest that these cannot be entirely neglected. The position in the Common Market, as I am sure the Financial Secretary knows, is that one of the Governments, the French Government, is already determined to control the level of American investment. The industries of Italy and Germany are increasingly anxious to achieve a measure of control, and I


suggest that the tide is tending towards a position where the Governments inside the Common Market will want to coordinate the control of the flow of investment from the United States; and, of course, this agreement flies precisely in the opposite direction.
I believe that the Government's hopes of entry into the Common Market are pretty well in the coffin already. I do not suggest that this is a very large nail in the coffin, but this is a nail, and this is a culminating reason for objecting to the circumstances of this agreement.

11.32 p.m.

Mr. John Nott (St. Ives): I agree with very little of what the Financial Secretary and the hon. Gentleman the Member for Manchester, Cheetham (Mr. Harold Lever) normally have to say. But I have no objections whatsoever to this Order, and in this respect I find myself in a minority of one on this side of the House.
I follow completely the arguments of the hon. Gentleman opposite which—if I may have my own private and personal opinions on these matters—I felt were probably in order, because the points which he made were very pertinent to the matter which we have been discussing tonight.
Either we have to say that we disagree entirely with the Corporation Tax system, and I disagree with it completely—I have no previous record in the House which can tell against me in that respect; I think that the Corporation Tax system is an absolute disaster, and will be shown to be increasingly so in future years—or we have to say, as the hon. Gentlemen have said, that Corporation Tax should be levied at a rate of 50 per cent. or 48 per cent., at a comparable rate to that in the United States. These are the only two logical alternatives which can be adopted on this side if we object to this Order.
So far as American investment in this country is concerned, I have to disagree with my hon. Friend the Member for South Angus (Mr. Bruce-Gardyne). I am wholly in favour of the maximum amount of American investment in this country. The more capital we have coming into this country from every country abroad, the better it must be for this country and for its efficiency.
Where I disagree with the party opposite is that in so many other fields they are discouraging investment from abroad, and there is a whole host of examples which I could give but which, obviously, I have not time to give tonight. That is my criticism of the party opposite. In other fields, it is preventing American investment and overseas investment in this country.
I am happy with this Order because I believe that by leaving the withholding tax at 15 per cent. it will act as a real incentive to American companies to invest here. Chrysler-Rootes has been mentioned already. That was a wholly logical and reasonable action to have taken place. Hon. Members on this side of the House were perfectly right to support it. Hon. Members opposite were perfectly wrong to come out against it. I should like to see more and more effort made on the part of the Government to encourage American investment in this country and I consider that this Order does just that.
However, on the other side of the coin—the question of the withholding tax which British investors have to pay when investing in the United States—I can see the argument that has been advanced by my hon. Friends that British investors are at a disadvantage compared to their American cousins. Frankly, I must say that in the current economic circumstances of the country this is something which, in the short term, I do not deplore. It seems to me that if we are running a very substantial deficit on our capital account, the country must be prepared to accept short-term—I emphasise "short-term"—checks against overseas investment by this country in the United States.
Of course, the dollar premium, if I may quote an example, is far and away a greater disincentive to British investment in the United States than this can ever be. The dollar premium is now going up and up, and I wholly disagree with the policies of the Government which has led the dollar premium to rise in this way because among people overseas the dollar premium is thought to be the price which the United Kingdom resident will pay to get out of sterling. I have heard it denied by the Chancellor that this is the case, but the fact is that people overseas say that if the United


Kingdom resident will pay 20 per cent. to get out of sterling and into dollars that is evidence of the way in which sterling is over-valued at the present time. I think it is reasonable in the short term that the United Kingdom investor should have to bear a penalty for holding investments abroad.
I would make this one request. I have no knowledge of the negotiations which led up to this Order, but there must be some way in which we must persuade the American Government that when our short-term position is corrected, when the balance of payments is corrected, the disadvantage to United Kingdom investors is reasserted, and United Kingdom residents are put back in a position which is no less favourable than American investment in this country.
I would enter that plea, that when our position improves, a comparable position can be arrived at for both countries. But at present I feel that this Order is perfectly reasonable. I am not against it, and in that respect I cannot support what has been said on this side of the House tonight.

11.38 p.m.

Mr. Stratton Mills: My hon. Friend the Member for St. Ives (Mr. Nott) referred, I think rightly, to the incentives to United States investment to which this Order will undoubtedly lead. It will make the United Kingdom a magnet attracting a lot more American investment; and certainly, representing a constituency in Northern Ireland, I can say what tremendous benefits they have brought in the postwar decade which are wholly to be welcomed. Also, coming into an area such as Northern Ireland, they act as pace setters and have a considerable beneficial effect on the other industrialists and industries in that community.
It would be foolish to imagine that one of the Government's main purposes in arranging this agreement is to attract American investment. This agreement is the result of the attitude adopted by Mr. Surrey, who has been Assistant Secretary at the Treasury in Washington, and the attraction of American investment has turned out to be very much of a side product.
My hon. Friend the Member for Wan-stead and Woodford (Mr. Patrick

Jenkin) said that this agreement became inevitable once the Finance Act, 1965, came into force, introducing, as it did, Corporation Tax. The hon. Member for Manchester, Cheetham (Mr. Harold Lever) asked whether we were to move from 40 per cent. Corporation Tax to 48 per cent. Corporation Tax, but I suggest that there are certain other possibilities open to us. There is the possibility which the hon. Gentleman posed, of not having Corporation Tax at all. There is the possibility, which I suggested in an intervention during the hon. Gentleman's speech, of adopting the French and German systems, where there is a high rate of Corporation Tax and dividends are paid is an allowance, or a partial allowance, against Corporation Tax.
There is the third possibility of adopting the American system of a high rate of Corporation Tax, and a very much lower rate of personal taxes.

Mr. Speaker: Order. These are the possibilities which we cannot discuss in detail here. We can discuss them at some other time, but not on this Order.

Mr. Stratton Mills: Mr. Speaker, I appreciate that you have ruled other than a passing reference to these matters out of order, and I shall not pursue that point any further.
Are the Government satisfied with this agreement? They have signed it, and the hon. and learned Gentleman has commended it to the House, but are the Government satisfied with this agreement?
Secondly, in the negotiations which took place between the various officials, did the Treasury ask for a different rate of withholding tax in the United Kingdom compared with that in the United States, or did its officials say at the beginning of the negotiations, "We have read what Mr. Surrey said in Montreal in September, 1964. We know that that is his attitude, and we are happy to have the withholding rates exactly the same"? It is pertinent to our discussions to have that point cleared up.
What estimates have been made by the Government of the likely loss to the Treasury as a result of this agreement? In the House on 22nd February last the Chancellor was reluctant to put any figure on it, and when my right hon. Friend the Member for Stafford and Stone (Mr. Hugh Fraser) suggested £10 million that


was neither accepted nor denied. I think that it would be useful to be told what the estimate is.
I appreciate that there are many variable factors in this, and perhaps I might pose the question in another way and ask what would have been the loss to the revenue in the years 1965–66 if the agreement had been in effect? It is much easier to make an estimate on looking back a year, and I am sure that this sum must have been done by the Treasury when these negotiations were under way. I hope that the Financial Secretary will not say that it is impossible to give any kind of estimate, because I would be most reluctant to believe that our negotiators went into these discussions without being armed with a rough estimate of the cost involved.
As my hon. Friend said, 63 other agreements require to be renegotiated as a result of the Finance Act, 1965. It is clear that this agreement will set the precedent for those other negotiations. The American agreement of 1946 acted as a precedent for all the agreements that were negotiated subsequently and it is difficult to believe that the Treasury will not find itself tied to this agreement in the negotiations on the 63 other agreements.
Can the Financial Secretary say what is the likely cost to the Exchequer if the same practice of a common withholding rate is adhered to? This is a very bad agreement. It is, perhaps, an inevitable agreement, but the error was basically the error of Her Majesty's Government in the mistakes they made in the Finance Act last year.

11.46 p.m.

Mr. MacDermot: The first and major topic in this very interesting debate was whether the bargain which we struck was a reasonable and fair bargain with which we could feel satisfied. Certainly we felt satisfied, or we should not have signed it and commended it to the House. The hon. Member for Wanstead and Woodford (Mr. Patrick Jenkin) called it a thoroughly dismal bargain. His case is that we should have stood out for the right to levy a higher withholding tax as a counterpart for the fact that we have a lower rate of underlying tax than has the United States. This, in essence, is the whole of his argument.
The hon. Gentleman must make a realistic approach to this problem, as must the Government, and not begin with an unreal starting point. He quoted some remarks made by Mr. Surrey, and made the very curious remark that we should have known that Mr. Surrey was a "tough nut" when we came into office and decided to make our changes.
What did the hon. Gentleman mean by that? The only meaning that I can read into it is that, because the Americans have declared that rates of withholding tax must be reciprocal in any double taxation agreement which they make, that alone should have influenced us and made us decide not to introduce Corporation Tax. I thought that the hon. Gentleman, like his party, supported the idea of the Corporation Tax. I know that the hon. Member for St. Ives (Mr. Nott) has expressed a different view, and that some other hon. Members opposite have made it clear that they do not support it, but I thought that there was broad agreement on it.
If it is right that we should adopt the Corporation Tax system, then, as the hon. Gentleman himself said, it is inevitable that we have to renegotiate the agreement. I am not talking now about an agreement between a developed and an underdeveloped country, but between two developed countries. The only realistic starting point is that which is generally accepted in relation to double taxation agreements, that underlying tax and withholding tax are regarded as quite separate matters. Underlying tax is regarded as a purely domestic concern of each country, and the withholding tax alone is negotiable. It is difficult to see any reason why, between two developed countries, one country should consent to impose a lower rate than the other.
Having said that on the general question of the approach and the suggestion that we are naive, irresponsible or chicken-livered negotiators, let us look further at the implication of the suggestion. If we were to succeed in striking a bargain of the kind suggested by the hon. Member, there would be serious practical inconveniences, because it would mean that the agreement would have to provide for the changing of the rates of withholding tax with fluctuations in the rates of underlying taxes to which


they were related. This is not something which the trading community would welcome, because when one gets these agreements and gets an agreed rate of withholding tax, this is something which one expects to last for a substantial period.
I come now, however, to the far more cogent point that it is by no means certain that a higher rate of withholding tax would, taken in total and taken in long term, be to our advantage. I agree with the hon. Member for Wanstead and Woodford that the agreement is likely to have a profound effect upon other conventions, because the United States is the country with which we have the greatest volume of trade which is affected by these agreements and the greatest flow of dividends and it is therefore likely to influence other agreements.
If we were to have had a higher rate, there could be a number of disadvantages. First, the point has been made by a number of hon. Members, including the hon. Member for Wanstead and Woodford impliedly, that it could be self-defeating in that it would serve to discourage United States investment in this country. Secondly, United States companies would then have a strong incentive, if not be forced, to operate through branches here rather than subsidiaries, in which case there would be no payment of dividends and we would get no withholding tax.
In any event, if we take the long view and the broad view, it is surely in the interests of this country that as a matter of international practice withholding taxes should be kept low, because although in the case of the United States there is a greater flow of dividends from this country to the United States than vice versa, taking the flow in and out from this country as a whole, overall more dividends flow into than flow out of the United Kingdom. Overall, therefore, it is to our advantage if the general pattern is that the withholding taxes are low.
I turn to the question of the effects of the agreement. By way of preface, I suggest that it is misleading to speak of a tax loss resulting from the agreement. The fact is that the agreement provides for the first time for the United Kingdom

to levy a withholding tax on dividends over and above the tax which is paid on a company's profits. It does not follow that the present relationship of United States and United Kingdom Corporation Tax will always remain the same.
One does not have to go back far to find a different position. As recently as 1960–61, United Kingdom Income and Profits Tax together totalled 51½ per cent. United States Corporation Tax was 52 per cent. Under our old system, however, the United States was able to tax portfolio dividends at the rate of 15 per cent. and direct investment at 5 per cent. whilst we could impose no additional charge. To go back a year earlier, in 1959–60 the United States rate was 52 per cent. and the total United Kingdom rate was 48¼ per cent. On a long-term view, therefore, there is no reason to assume that the position is any less favourable under the present position than under the old.
I turn directly to the question of the effect on our balance of payments. I agree that one immediate effect of the agreement is that the post-tax earnings of United States subsidiaries will be increased compared with their previous position.
The hon. Member made two propositions at the outset of his remarks. He said that this was a dismal bargain for the United Kingdom investor and also for the United Kingdom revenue. The figures he gave for the United Kingdom investor proved next to nothing, but I concede his point that the immediate effect is to transfer a greater proportion of the tax that is paid on the return of United States investment in this country from our Exchequer to the American Exchequer. In other words, the American Government gets a bigger slice of the tax paid on the fruits of that investment than it used to.
Taken all in all, in the whole context of the agreement, that in itself need not necessarily be something which should plunge us into gloom, because there are compensating factors, a number of which have already been referred to. Let us remember, first, that a substantial proportion of the earnings of United States subsidiaries in this country are reinvested. This is one of the advantages that we have achieved, and which we deliberately


intended to achieve, by striking a low rate of Corporation Tax—for which some hon. Members opposite criticise us.
The point made by many hon. Members is that a greater post-tax return is bound to encourage a greater flow of United States investment into this country and, equally, to direct a greater part of whatever flow is coming from America to Europe into this country rather than into Continental countries. This is a matter on which nearly every hon. Member who spoke was agreed. My hon. Friend the Member for Manchester, Cheetham (Mr. Harold Lever) was, and then we had a very constructive speech from the hon. Member for Bodmin (Mr. Bessell).
The hon. Member for South Angus (Mr. Bruce-Gardyne) agreed that it was likely to have this effect, but he bemoaned it. He said that this agreement appeared to fly in the face of United States policy of restricting capital outflow. He seemed to want us to join with General de Gaulle in trying to restrict United States investment in Europe, including this country.
It is interesting to detect the different overtones that emerge when we discuss matters of this kind, and to note some of the sentiments and attitudes that are normally associated with Little Englanders being voiced by people who who are keen advocates of our joining the European Common Market because they think that this attitude will somehow make us more acceptable to those whom they wish to join in Europe.
A third compensating factor, from the point of view of our balance of payments, is the brake upon United Kingdom investment in the United States, so that the flow of new money from the United Kingdom is reduced. Again, it is interesting to hear hon. Members opposite extolling the virtues of overseas investment by the United Kingdom, something which they say the wicked Labour Government are, and ought not to be, restricting, whatever the effect on our balance of payments. But as soon as anybody suggests that any action of ours might help to encourage American investment in this country it is said that we are selling this country down the lane to America. There are extraordinary inconsistencies in the arguments to which we have listened from hon. Members opposite tonight.
I was asked to quantify the effect of the agreement. It is impossible to do this in respect of the net effect on the balance of payments which may result in time. Depending how the pattern of new investment alters in relation to different post-tax yields of investment in each country, the net effect might not in the end be very much. I have answered a number of specific questions and—

Mr. Stratton Mills: Mr. Stratton Mills rose——

Mr. MacDermot: —I will answer the other questions I was asked, before giving away and being asked some more.
The hon. Member for Wanstead and Woodford asked a technical question about the meaning of the phrase "'effectively connected with' which relates to the 'force of attraction'". This term, which bemused the hon. Gentleman, is drawn from the model O.E.C.D. Convention and, as I have said in previous debates about double taxation agreements, it is our intention to follow the wording of these Conventions where we can and wherever they are suitable. This term has been used in a number of agreements. It applies to dividends which form part of the income of a permanent establishment.
The hon. Gentleman also asked me about the phrase, "directly or indirectly attributable to". That describes the measure of profits on which a permanent establishment may be taxed. The phrase "reasonably connected" indicates the expenses which are to be taken into account in computing the profits of a permanent establishment. If the hon. Gentleman reflects on these phrases in relation to the subject matter under discussion, he will see that they are aptly chosen to deal with the situation, and that nothing is to be gained by trying to find distinctions between the precise meaning of each phrase.
I was then asked about royalties; about the present position and whether they are paid gross or under deduction with subsequent relief payments. The answer is to be found in the Double Taxation Relief (Taxes on Incomes) General Regulations, 1966. They provide for them to be paid without deduction of United Kingdom tax where exemption is due to non-residents by virtue of a double taxation agreement.
The hon. Member for Wanstead and Woodford then asked about the arrangements which have been referred to for payments under deduction. I cannot assist him further at this stage, except to remind him that in the present Finance Bill we recently approved in Committee a Clause which gives power to make regulations. We are discussing this with various interested bodies and we hope to produce schemes which will be workable and which will not impose any impossible burdens on companies. I am speaking from recollection, but the intention is that they should be only voluntary and that they should not be imposed on companies against their will. We have machinery to devise—with the assistance of certain banks and agencies in the City—schemes for firms which want to take part in them to make the payments under deduction. I cannot assist further at present with the details.
The hon. Gentleman then asked about Article 19(a) dealing with collection. The effect of this Article is that it can help in arranging to give relief from tax at source on United Kingdom dividends. If a relief is given by mistake—for example, to a resident of a third country using an American nominee—the United States will then endeavour to collect the tax which we ought to have had. No retrospective element arises. It will merely be the collection of a tax which was due all along and which was not originally deducted because of some misinformation given, intentionally or otherwise, to the Revenue.
I was asked by the hon Member for Belfast, North (Mr. Stratton Mills) what the cost would be to the Exchequer, in our estimate, as a result of the new agreement. One can only make any estimate on the basis of certain assumptions. The figure would depend upon the dividend policies of the companies concerned. On the assumption that portfolio divi-

dends are maintained at the same gross amount and that subsidiaries pay to their United States parent companies sufficient dividends to maintain the net receipts of the parent companies, it is estimated that the reduction in tax receipts in respect of company income distributed to United States residents will be of the order of £6 million. It is right to point out that the reduction would have been greater if it had not been for the abolition of investment allowances. One ought, therefore, to take into account the annual cost of investment grants to subsidiaries of United States parent companies. This is estimated to be £23 million, making the total cost to the Exchequer £29 million.
Against this, there will be savings to the Exchequer in relation to the tax charged on United Kingdom residents drawing income from the United States. The income derived by United Kingdom parents from American subsidiaries after taking into account the Income Tax on the parent companies' own distributions will suffer more from United Kingdom tax than before, and the Exchequer gain from this is estimated to be £10 million. The withdrawal of underlying tax from portfolio investment will save another £8 million. The net figure at the end of these rather complicated calculations is about £11 million, on those assumptions.
I have endeavoured to answer the questions put to me. I hope that the House will now feel able to approve the Order.

Question put and agreed to.

Resolved,
That an humble Address be presented to Her Majesty, praying that, on the ratification by the Government of the United States of America of the Supplementary Protocol set out in the Schedule to the Order entitled the Double Taxation Relief (Taxes on Income) (U.S.A.) Order 1966, a draft of which was laid before this House on 2nd May, an Order be made in the form of that Draft.

To be presented by Privy Councillors or Members of Her Majesty's Household.

SYNTHETIC DETERGENTS (IMPORT DUTY)

Motion made, and Question proposed, That this House do now adjourn.—[Mr. McCann.]

12.8 a.m.

Mr. John Cordle: I am grateful for the fact that I have been able to obtain this Adjournment debate. I am glad to see the Minister of State, Board of Trade, in his place to hear what I have to say on this important subject. I have committed what I wish to say to paper. I trust that it will be dealt with as quickly as possible so that we can get away, because the hour is late.
I raise tonight a matter which is essentially somewhat technical and which strays into the world of complicated chemical formulae. Although the question of feedstocks for biodegradable synthetic detergents may seem a more suitable subject for a learned paper to the Royal Society than a matter for an Adjournment debate, it has a very real relevance, both to the millions of users of detergents and to Britain's modernisation and competitive position in the world.
The manufacture of detergents is a complicated process. A desirable raw material, if that is the right description, is straight chain fatty alcohols. These can be derived in two ways—either from natural feedstocks consisting of palm kernel oil, coconut oil and tallow, or synthetically from ethylene. Since 1953 there has been a Standing Committee on Synthetic Detergents which reports to the Ministry of Housing and Local Government. The Committee's instructions are
to examine and report on the effects of the increasing use of synthetic detergents and to make any recommendations that seem desirable, with particular reference to the functioning of the public health services.
The Standing Committee is primarily concerned with two problems: first, foam, and, secondly, the biodegradafion in sewerage plants. It has produced seven progress reports and I understand that shortly the eighth is to be published. Both from the trend of these reports and the excellent results obtained by the laboratory of the Government Chemist, confirmed by work in privately-owned

laboratories in the United States, it would appear that synthetically derived straight chain fatty alcohols are equal to naturally derived fatty alcohols in all respects and that such straight chain primary alcohols are 100 per cent. degradable in three to five days and that, by their incorporation in both domestic and industrial detergents, foam on rivers and in sewage plants can be virtually eliminated. Similarly, the amoebic degradation sewerage plants would not be jeopardised.
This is a very real problem as witnessed by the experience of Birmingham a few years ago. This, then, gives a satisfactory answer to the justifiable protesting anglers and fishermen that the life of fish, otters and other water dwellers would not be impaired.
I understand that the principal detergent manufacturers in this country are all looking towards synthetically derived fatty alcohols for a number of reasons. The price of natural oils fluctuates sharply from month to month, but the general trend, particularly for tallow, is upwards and there is little doubt that prices will continue to rise in the foreseeable future. On the other hand, ethylene has had a more stable price level and the greatly increased ethylene capacity building at the moment means that it is an almost foregone conclusion that the price of ethylene will come down and remain at a lower level than the current price.
Further, I am informed, although I am no expert, that the manufacture of fatty alcohols by hydrogenation of natural oils is already out of date and will become an increasingly old-fashioned and inefficient process.
Having, I hope, effectively established the case for synthetic fatty alcohols, I turn to the current manufacturing position. The principal manufacturer of straight chain fatty alcohols in Britain is Messrs. Marchon Products, Ltd., of Whitehaven, who use natural feed stocks. As far as I am aware, there is no United Kingdom manufacturer of synthetically derived fatty alcohols, although a number of European countries, particularly Germany, are well established in this manufacture. A German company began their selling operation of the synthetic produce in this country a year or two ago. This apparently prompted


Messrs. Marchon to make various applications to the Board of Trade to raise various import duties on synthetically derived products, no doubt with the legitimate and understandable reason of protecting its own market and interests.
Messrs. Marchon made a successful application for discontinuance of exemption from the duty of C8, C14, C16 and C18 alcohols as from 1st January, 1964. Also in January, 1964, Messrs. Marchon made application for the imposition of a 20 per cent. ad valorem import duty on ethoxylated alcohol under tariff heading 34·02. This is unresolved at the moment. A parallel application was made at the same time by the Association of British Chemical Manufacturers, which may be coincidence but I doubt it. This, too, is unresolved at the moment.
In March, 1964, Marchon Products made an application which was successful and culminated in the Import Duties (General No. 4) Order, 1965, S.I. No. 1170, effective from 31st May, 1965, and had the effect of raising the ad valorem import duty on synthetically derived fatty alcohols from 10 per cent. to 20 per cent.
When I raised the matter with the Minister of State last November, he was good enough to tell me that it was at that time too soon to judge whether the Board of Trade was right or wrong to raise the import duty. That may well have been a reasonable attitude after less than six months' operation of the increased duty. But after a year perhaps the Board of Trade is in a position to give a considered judgment. I hope that the Minister of State will be able to give us his fair comment on that.
The whole question of import duties is complex and by no means as clear-cut as some people would imagine. But I believe that in this instance Marchon Products has not acted in the best interests of either the country or, indeed, the British chemical industry. First, Marchon Products is not a small firm struggling manfully against overwhelming and unfair international competition. It is a company with an excellent industrial record which is part of the giant Albright and Wilson group, which I should have thought was more than able to hold its own against all comers.
Secondly, although I am not competent to judge on this matter, it appears that the overwhelming weight of technical opinion is in favour of synthetically derived fatty alcohols rather than those from natural products.
Thirdly, all the indications are that the synthetic raw materials will fall in price while the natural materials will continue to rise in price. This must have an adverse effect on the price of the finished product, and surely anything that helps to keep prices down should be a first priority of this and any other Government.
Fourthly, it would appear that an out-of-date and increasingly inefficient manufacturing process is being artificially protected. This is not the way, surely, to develop science or carry out the technological revolution that we hear so much about.
Finally, there is no question of continuing the present arrangements on social grounds, because, while I recognise and pay tribute to the excellent job Marchon Products has done in bringing work to an area of high unemployment, my information is that its alcohol plant employs about 35 people, including all shift working.
I recognise that the importation of raw materials from Germany can add in the short term to our balance of payments problems—goodness knows they are bad enough—but if the British industry is to meet the challenge of constantly changing processes and markets, it must be subject to the prod and spur of sensible and fair competition. As the President of the Board of Trade remarked just over two months ago in a letter to the Confederation of British Industry about the import charge:
I wish to take this opportunity of emphasising that the charge is in no sense intended to operate as a protective measure and that there could be no question whatever of continuing it. or replacing it by other forms of restriction, in order to afford protection to specific British industries.
It is in that spirit that I have ventilated this case, and it is in that spirit that I ask the Minister to think again.

12.18 a.m.

The Minister of State, Board of Trade (Mr. George Darling): First, I thank the hon. Member for Bournemouth, East


and Christchurch (Mr. Cordle) for letting me know in some detail the points that he was going to raise. This has been most helpful.
The hon. Member has attempted to make out a strong case for the removal of import duties on certain fatty alcohols that are used mainly to produce the base for detergents, which, as he says, is a socially desirable thing to do, even though the economics of the operation may be in question, because it helps to produce detergents which do not clog our drains or pollute our rivers with foam.
The hon Member asserts with some justification that the increase in the import duties about which he is complaining—the Orders which raised the tariffs on these fatty alcohols from 10 per cent. to 20 per cent.—was introduced and approved by the House mainly to benefit one firm, Marchon Products Ltd., of Whitehaven. He has named this firm and described it—quite properly; I am not complaining about that. But it would be as well to put on record the firm whose case against the tariff he has presented. The hon. Member has been expressing views which are strongly held by a joint United States-German firm, Condea, who, wishing to export more of their products to this country, complain that we are protecting certain firms in Britain and one firm in particular and that we are stifling their efforts to expand their market.
In the few minutes we have available on an Adjournment debate we ought to examine the problem which is thus presented. The 1965 Order increased the import duty on these fatty alcohols from 10 per cent. to 20 per cent. The alcohols concerned are feedstocks for what are called biodegradable detergents. I will not spell out the formula which appears in the Order but we know that the materials about which we are talking are the key ingredients in the soft powder and liquid detergents. As I have said, these are detergents which do not produce the lasting foam about which there are so many complaints.
When the tariff was imposed it was partially designed to protect a British industry which had, as I am sure the hon. Member agrees, invested large sums of money in research and new processes to produce what was then and is still

considered to be an urgently needed product. Secondly, the firm, Marchon Products Ltd., is situated in a development district, where employment considerations are also of considerable importance. In fact, the firm employs one-fifth of the male workers in the town in which it is situated. I do not know whether the hon. Member's figure is correct. I am taking his word for it that only 35 people are directly employed in this process. But even though this is so, or may be so, this is only a beginning and the employment may well increase. In any case, from the national point of view it is more desirable to keep an operation, even though it is a capital intensive operation, going and a product which has a good chance of expansion in a development district than to close it down and to import the products that it makes from overseas.
The 35 people do not tell the whole story. There are subsidiary occupations which depend upon the prosperity of the firm and its employees in that area. The position is that a new industry has been established at considerable initiative and foresight on the part of a British firm and at considerable cost to make a product for which, I am advised, there should be a growing demand throughout the world. If it is successful it may be expected to make a valuable contribution to our balance of payments, both by exports and by import saving. I agree with the hon. Member that the industry is socially desirable both because of the contribution which it can make to eliminating pollution of rivers and maintaining a pure water supply and also because it gives much-needed employment in a development district.
As the hon. Member said, the British firm's fatty alcohols are derived from animal and vegetable oils and fats and these compete directly with similar or somewhat similar alcohols made by other producers by different methods from different basic materials. Any protective duty, therefore, to be effective must apply to all the alcohols concerned without regard to the material from which they are derived. I am advised that it would be extremely difficult, perhaps impossible, for Customs to distinguish between alcohols derived from natural materials and those derived from mineral or synthetic feedstocks. I do not know


enough about the chemical processes involved to say whether the hon. Member's technical arguments for ending these duties are sound.
The hon. Member, for instance, asserts that synthetically derived alcohols are superior to naturally derived alcohols, but I am advised that even if that argument is correct—and it is by no means established—it may be without substance so far as the tariff is concerned, because relatively soft detergents are being made from sources not requiring fatty alcohols. Also, the imposition of the tariff does not prevent anybody from importing synthetically derived products, and detergents are not the only products made from fatty alcohols.
The hon. Member asserts that vegetable oil prices are going up and will continue to go up and that the duties will deprive us of cheaper alternatives. But there is no sound evidence for that. It is true that vegetable oil prices fluctuate. They have recently been going down, and that rather conflicts with and perhaps disposes of the price argument, but even if the hon. Member is correct in his estimate of future price trends upwards, clearly the tariff or synthetically based fatty alcohols will become less and less important. The hon. Member said that the natural process is becoming out of date and inefficient. I am told that this is a matter of opinion and, because it is, it is a factor which the market itself will decide.
There is always room for research and adaptation and detergents are not the only use of fatty alcohols. The protection given by the tariff on fatty alcohols would cover any production from synthetics that any chemical firm decide to establish. To remove or reduce the present duty would not only diminish the protection given to existing production from vegetable oils, but would be a disincentive to a manufacturer who might consider production from synthetics in this country.
The hon. Member says that the Board of Trade has had plenty of time to judge

the effects of the change. The reasons for the change last year have not altered in our opinion and all the arguments he has advanced were advanced a year ago. It is true that he argues that Marchon Products Ltd. is a large and successful firm associated with a large group, but I am sure he is not suggesting that only small and unsuccessful firms should be entitled to any kind of tariff protection. He says that British industry must be subject to sensible and fair competition. Our view is that this tariff seems to set a reasonable level of fair competition with imports.
None of the circumstances which led to our decision last year has significantly changed. There is a substantial productive capacity of fatty alcohols in Britain which, in our view, in present circumstances, deserve this 20 per cent. tariff protection.
We are not in principle protecting the manufacture of detergents from vegetable oils against the imports of products derived from synthetics. This is, perhaps, the practice as it would appear at the moment, but any producers from synthetics would enjoy the same protection now going to the producer of these detergents from a natural base.
Of course, we are always prepared to reconsider import duties or tariffs at any time—Indeed, the Board of Trade has a statutory duty to keep tariffs and import duties regularly under review—and we shall continue to do this in the hope and expectation of making changes, which will have approval, to reduce and, perhaps later, abolish quite a number of protective tariffs by agreement. But we have still a long way to go in that direction. As I have said, we have given this matter great consideration, and we do not think that the circumstances that led us to increase the tariff a year ago have, in fact, changed.

Question put and agreed to.

Adjourned accordingly at half-past Twelve o'clock.